What is the Keynesian model?

Keynesian model is a set of economic theories promoted by John Maynard Keynes. The model works on the belief that the private sector does not always bring the most effective results for the economy as a whole. Therefore, it supports a certain degree of state intervention to influence the economy, in particular to manage the impact of a trade cycle of growth and recession. The practical use of the Keynesian model lies somewhere between a pure market economy and a purely state -controlled economy, and therefore covers the position of most of the main countries in the 21st century. Keynes claimed that several obstacles occurred. One of them is that human nature means that people are more concerned with the actual amount of their wages than the actual value of their income, taking over the price change. This meant that the relationship between wages, employment levels and price levels would not always be automatically operated. For example, people would refuse to take a lower amount of dollar in wages, even if prices fell by a larger share, and so they would be better.

Keynes also questioned the idea that the interest rate movement would prevent people from expeling too many expenses, causing the demand for products and services. This was for various reasons, in particular that interest rates are decided by more supply and demand for loans than to save the public. This meant that excessive savings could lead to a recession.

Keynesian model requires fiscal policy where governments increase expenditures at a time when the economy slows down. This includes a theory described as a multiplier. This is given to the government if the government spends on job creation, employed people will have more money to spend. They will then demand goods and services from private companies that will be hired by more people who will again have more money to spend, etc. The idea is that the overall increase in income and expenditure in the economy will be high "multiple" original government expenditures.

Critics of the Keynesian model believe that the offer of money in the economy has a greater effect. He also claims that government expenditures on "start" economic growth can easily take employees and resources from the private sector. Instead, critics support monetary policy that supports measures such as interest rate control to affect how much money is provided to to consumers and businesses in loans. Most governments today use a combination of fiscal policy and monetary policy.