Please help me... don't understand the question

Examine the essential theoretical presumptions of the Keynesian view of the transmission mechanism operative in an economy and consider the implications for the conduct of counter-cyclical policy

 please can you explain the question??


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Keynesian economics (pronounced "cainsian", IPA /?ke?nzj?n/), also called Keynesianism, or Keynesian Theory, is an economic theory based on the ideas of 20th century British economist John Maynard Keynes. Keynesian economics promotes a mixed economy, where both the state and the private sector play an important role. Keynesian economics markedly differs from, and sought to provide solutions to what economists believed to be the failure of laissez-faire economic liberalism (which advocates that markets and the private sector operate best without state intervention).

In Keynes's theory, macroeconomic trends can overwhelm the micro-level behavior of individuals. Instead of the economic process being based on continuous improvement in potential output, as most classical economists had believed from the late 1700s on, Keynes asserted the importance of aggregate demand for goods as the driving factor of the economy, especially in periods of downturn. From this he argued that government policies could be used to promote demand at a macro level, to fight high unemployment and deflation of the sort seen during the 1930s. This however is contrasted by Supply-side economics. Keynes believed that the government was responsible for helping to pull a country out of a depression. If the government increases its spending, then the citizens are encouraged to spend more because more money is in circulation. People will start to invest more, and the economy will climb back up to normal.

A central conclusion of Keynesian economics is that there is no strong automatic tendency for output and employment to move toward full employment levels. This conclusion conflicts with the tenets of classical economics, and those schools, such as supply-side economics or the Austrian School, which assume a general tendency towards a welcome equilibrium in a restrained money-creating economy. In neoclassical economics, which combines Keynesian macro concepts with a micro foundation, the conditions of General equilibrium allow for price adjustment to achieve this goal.

More broadly, Keynes saw his as a general theory, in which utilization of resources could be high or low, whereas previous economics focused on the particular case of full utilization. (from Wikipedia)

 

counter cyclical policy Definition

Government policy aimed at reducing or neutralizing anti-social effects of economic cycles. Such policies encourage spending during downturns, and tighten credit during inflationary periods.(http://www.businessdictionary.com/definition/counter-cyclical-policy.html)

Hope this helps...seems to me the question is simply a comparative how does one influence the other.


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Basically they're asking what is the theoretical basis for the economical policy, and what implication each theory has.


Posted 1 year ago ( permalink )
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