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Finance Glossary

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Keynes

Definition:

We at Shmoop are keen on Keynes -But as the Depression only worsened through the first years of the 1930s, many began to doubt the classical economists' faith in the market's long-run ability to correct itself. "In the long run we're all dead," protested British economistJohn Maynard Keynes. "Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again." In his massively influentialGeneral Theory of Employment, Interest and Money(1936), Keynes suggested that the Great Depression had been caused by a broad failure of aggregate demand across the economy, which created a new equilibrium at less than full employment-a situation in which Depression conditions might persist indefinitely. In order to increase aggregate demand and get the economy moving again, Keynes argued that the government should massively increase its own spending in times of economic distress, even if it meant running a significant budget deficit. While most of the key players in the Roosevelt administration were initially skeptical of Keynes's theories, the New Deal did end up taking on a broadly Keynesian quality, characterized by major and unprecedented government interventions into the economy. Keynesian ideas went on to dominate academic and government thinking about political economy through the 1960s.

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