Keynesian Economics is a macroeconomic theory developed by British economist John Maynard Keynes during the 1930s, primarily in response to the Great Depression. It emphasizes the role of government intervention and aggregate demand in stabilizing economic fluctuations and promoting growth. According to this theory, market economies are not always self-correcting, and without active policy measures, they may remain stuck in prolonged periods of high unemployment and low output.

At the core of Keynesian Economics lies the concept of aggregate demandóthe total demand for goods and services within an economy. Keynes argued that fluctuations in aggregate demand are the primary cause of economic cycles. When demand falls, businesses cut production, leading to layoffs and reduced income, which further suppresses spending. To counter this, Keynes recommended the use of fiscal policy, including government spending and tax adjustments, to stimulate demand and restore economic stability.

Unlike classical economists who believed that markets naturally move toward equilibrium, Keynesians advocate for active government involvement, especially during recessions. For instance, an increase in public investment can boost employment and income, creating a ìmultiplier effectî that supports recovery. Conversely, during inflationary periods, reducing spending or raising taxes can help cool down excessive demand.

Keynesian Economics has profoundly influenced modern policymaking. Governments and central banks often apply Keynesian principles to manage economic cycles, such as through stimulus packages or monetary easing during downturns. However, critics argue that excessive intervention can lead to budget deficits and inflation. Despite these debates, Keynesian thought remains a cornerstone of contemporary economic policy, shaping fiscal and monetary strategies used worldwide to ensure economic stability and growth.