The economy of Keynesian and Hayekian schools

Junior (College 3rd year) ・Business ・MLA ・1 Sources

Question 1

The Keynesian and Hayekian schools of economic thought both define different economic concepts. Increased government spending and decreased taxation result in a surge in demand for products and services, according to the Keynesian theory, which was created by British economist John Maynard Keynes. This will support any economic downturn by enabling the nation to achieve its highest level of economic performance. According to Keynesian theory, government intervention is essential for an economy to succeed, and decisions made by the public and private sectors have a significant impact on the economy's operations.
The Hayek theory of economics, on the other hand, was based on monetary theory, capital, and the Austrian business cycle theory. Hayek’s theory had its main concern on how the actions of humans are coordinated. It had a consideration on why markets failed in the coordination of plans and human actions which led to adverse effects on economic growth and economic prosperity leading to unemployment. One of the cases brought by Hayek was the supply of money by the central bank which raised the prices and levels of production leading to lower interest rates.

Question 2

According to Keynes, dealing with a recession takes a perspective that is short term to bring results instantly during hard economic times. Keynes believed that employment levels are determined by the aggregate demand in a given economy and not labor price hence with government intervention the lack of aggregate demand in the economy can be overcome leading to reduced unemployment.
On the other hand, Hayek argued that the Keynesian theory to reduce unemployment would bring about inflation hence money supply will have to be increased to keep the levels of unemployment low leading to increased inflation.

Question 3

The significance of the question on whether we should steer markets or set them free is based on both Keynes theory and Hayek’s theory. Time has shown that the theory according to Hayek that the government should take part in the market has been overlooked thereby being used only as a central planner tool which demeans economic outcomes which are bad from economic policies by Keynes. With the steering of the market, theories and ideas of Hayek and Keynes have continuously been used to argue against the involvement of government and government involvement and their fiscal policy effects.

Question 4

According to my view concerning the video, I would tend to support the Keynesian theory for business cycles. This is because according to Keynes government intervention is necessary for the success of the economy and that decisions of both the public and private sector are important for economic activity stimulation. Based on this theory, the government can be able to control businesses and provide funds to businesses which will, in turn, lead to the growth and development of the economy. With government spending in this theory, the economy can grow with or without spending on goods and services by the public. Keynes theory has also prevailed as government intervention in businesses has been essential over years as most countries have their government involved in their businesses. This has made Keynes theory preferred as it is also used in the present economies hence my preference to Keynesian theory.

Work cited

EconStories. YouTube, YouTube, 23 Jan. 2010,

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