Analysis Of The Australian Response To The 2008 Global Financial Crisis

The General Theory (1936) is arguably the manifesto that propelled John Maynard Keynes into the forefront of popular economics. Proposing the concept of a top-down approach to alleviating economic depression, Keynes’ based his theory on government spending in a downturn (Barthalon, 2014, p5). Consequently, the contributions of aggregate supply, aggregate demand and government spending are vital to Keynes’ model of a private macro-economy (Wells, 1991, p336). This is particularly prevalent as the relationship between the assumptions indicates the inherent instability of a capitalist market economy. Indeed, the contemporary orthodoxy of Keynesianism is testament to his impact on monetary and fiscal policies, evident through an analysis of the Australian response to the 2008 Global Financial Crisis (GFC).
Keynes’ conception of aggregate supply is a vital component of his General Theory, particularly because of its inference of the volatility of market capitalism. Defined as the relationship between proceeds and employment, aggregate supply relies on the assumption of the profit maximising nature of firms (Dequech, 2003, p479). Indeed, through an analysis of aggregate supply, it is possible to determine a firms’ level of employment, as proceeds must cover the cost of wages (Peterson and

In a monetary economy, Keynes demonstrates the dependence of income and stability on firms’ behaviour (Dequench, 2003, p480). Indeed, they General Theory internalises this and stresses firms’ reliance on short-term expectations of costs and proceeds to determine future actions (Dequech, 2003 p479). The instability of this system is strikingly clear, as economic expectations can arguably be almost impossible to predict correctly, and are diversely affected by political and social context (Dequech, 2003,