Keynesian economic policy

Definition

Keynesian economic policy is an economic theory that suggests that government intervention, through fiscal policies like increased government spending and tax cuts, can help stimulate aggregate demand and stabilize the economy during times of recession. It emphasizes the role of government in managing the overall level of demand in the economy.

Related terms

Fiscal Policy: The use of government spending and taxation to influence the economy. For example, increasing government spending on infrastructure projects during a recession.

Aggregate Demand: The total amount of goods and services demanded by households, businesses, and the government in an economy. It represents the overall level of economic activity.

Multiplier Effect: The idea that an initial increase in spending by the government can lead to larger increases in overall economic output. For example, if the government spends $1 billion on infrastructure projects, it may result in $2 billion or more of additional economic activity due to increased employment and consumption.