Keynsian economic theory

Keynesian economic theory suggests that overall economic activity—like growth and employment—is heavily influenced by government spending and demand. During periods of unemployment or recession, private investment and consumption may fall short, leading to decreased demand. In such times, government can stimulate the economy by increasing spending or cutting taxes to boost demand, encouraging businesses to produce more and hire more people. Conversely, during booms, slowing down spending helps prevent inflation. Essentially, Keynes believed active government intervention is essential to manage economic fluctuations, ensuring steady growth and high employment.