Theories of Economics

By: Summer Maccubbin

Keynesian Economics

  • An economic theory supported by John Maynard Keynes
  • Keynes wants to steer markets, to prevent problems before they start
  • Keynes stated that if investment exceeds savings, it will cause inflation
  • However, if savings exceeds investment, it will cause a recession
  • Keynes believed that governments should be fully engaged in their economies

Hayek Economics

  • An economic theory supported by Friedrich Hayek
  • Hayek wants to set markets free, and only intervene in the economy if there is a problem
  • He discovered malinvestment, if interest rates are too low, then it can cause bad investment
  • Hayek saw the boom and bust cycle, and believed that it was best to avoid the booms, so you can also avoid the busts

The Three Theories of Economics