John Maynard Keynes's Economic Policies

John Maynard Keynes was born on the 5th of June 1883 in Cambridge, England. He was the eldest of 3 children who were born into an Upper middle class family. John Neville Keynes, his father, was an economist and a lecturer in Moral Science at The University of Cambridge. John Maynard Keynes is widely known as the father of modern macroeconomics due to his ideas that revolutionized macroeconomics during the 1930s. He was a policy-oriented economist who concentrated on the economic policy of the Government and Macroeconomics.

During the 19th and the early 20th century, there was almost no interest in macroeconomics by the prominent economists of the time as it wasn’t the trend. The last major work in this field was done by Adam Smith on the theory

It was dreadful after the known advances accomplished in western standards of living during the new-era twenties. In the United States, the industrial output experienced a clear-cut by over 30 percent. Over one-third of the commercial banks consolidated or failed. The unemployment rate increased to more than 25 percent. The stock prices lost 88 percent of their value. Europe and the rest of the world also were also affected and faced a similar havoc. Keynes’ policy recommendations were followed by the governments to develop affluent economic conditions post- World War II and the Great Depression. The result of this was a period of historically unmatched real economic growth. It persisted for about a quarter of the century – starting from the end of World War II until the early 1970’s. Development Economist Irma Adelman announced this quarter as the “golden age of economic development” for all the nations that structured its economic system on capitalist principles. During this “golden age”, these nations did not experience any major unemployment concerns. Furthermore, the income and wealth of these nations grew at a more increasing rate than they ever experienced. There was also a reduction in the existing inequalities, and almost all population of these nations experienced considerable developments in their standards of living. This economic performance record encouraged the

On the Y-axis, we have interest rate whereas as the X-axis, we have the output (Y). The IS curve is affected by fiscal policies. An expansionary fiscal policy, which can be either a rise in government spending or a reduction in taxes, would shift the IS curve to the right. A slimming down of the fiscal policy, which can be either a cut in government spending or an escalation in taxes, would make the IS curve shift to the left. On the other hand, the LM curve is affected by Monetary Policy. An expansionary monetary policy (where the monetary authority of an economy purchases bonds to expand the money supply) would cause the LM curve to shift to the right. A contractionary fiscal policy (central bank buys back bonds to reduce the money supply in the economy) would shift the LM curve to the left. IS/LM curve shift can also cause fluctuations in Business Cycle. Business Cycle is the movement of GDP in the long term. It is usually a mixture of upward and downward movement. A change in total demand can cause the IS curve to change whereas a change in demand / supply of money would cause the LM curve to shift. When talking about IS/LM we should also know about the liquidity trap. The Liquidity Trap is a situation in which an injection of money by