What is the connection between the Keynesian economy and the great depression?
The great depression is a phenomenon that has changed the world and many nations to manage economic situations. While classical economic theory, such as the Austrian school, sets a limited government in the free market system, supporters of Keynesian economic theories believe in a well -calculated governmental economic policy. These policies exist because free markets are unable to ensure full job and lack self -comparison mechanisms. Keynesian theory was dominant in the decade leading to great depression, which of course led to the most difficult economic decline in American history.
The Keynesian economy is often considered to be somewhat against business in nature, because it requires government to control great authority. Politicians are often discussed because the real cause of great depression is not the only incident, but rather a number of Missteps through misleading government policy. For exampleKá guilt for great depression lies on the American federal reserve system. This institution is responsible for determining monetary economic market policy, especially in the area of monetary offer. The Keynesian economy is trying to equalize the demand and supply for money using the central bank to determine the interest rate, which represents the cost of money. During the 20th years of the 20th century America still used the gold standard. The federal reserve system increased the discount rate to prevent from leaving America after the First World War. This had an immediate deflationary effect on the markets and began to reduce economic activity and artificially lower prices on the economic market.
As soon as the great depression was obvious and in full strength, the Keynesian economic theory required the government to intervene through programs and other investments led by federal policies. During this time, tax rates have also increased and individual incomes decreased. It was Resnad New Deal that created social security taxes - KeynesianThe economic brain to provide retirement for older citizens. Monetary policy also led to a significant decline in loans, which prevents banks from providing funds to individuals and businesses to involve in economic activities.
Another important factor in great depression was the Smoot-Hawley law. Classical economic theory believes that free trade was equal to a well -operated economy; The Keynesian economy used a competing act of the government to regulate the market and trade in foreign nations. Smoot-hawley was a protectionist measure that ensured that America would be able to produce and sell goods produced within its borders. This has tried to prevent low price market, which would reduce business investments and thus reduce employees' wages. It was also assumed that it helps to avert great depression, as a less imported higher domestic jobs. These factors are just a few significant contexts between KeyneSian Economics and great depression.