Theories of Economics

Created by: Ajay Verma

Theories of Maynard Keynes:


  • Spending has the ability to cure most of the ailments that hurt the economy. Helping more people get jobs and helping businesses get the money to pay for more jobs.
  • Output is determined by the demand
  • Keynes can steer the market by pumping more money into the system for people to spend.



John Maynard Keynes is responsible for the term Keynesian Economics. He believed that stabilizing the price level would result in a stable economy. In order to obtain a steady price level, Keynes thought that the central bank of the government needed to raise interest rates when prices started to fall and decrease the rates when prices started to rise.

Theories of Hayek:

  • The market should be directed by the people and their intrested rather than be influenced by the government.

  • The more the spending, the more the money gets concentrated with the few, and then the money is too sparse for everyone else, leading to less spending.

  • The economy should be run by itself and just have strict rules and guidelines by the government to regulate the equilibrium, but not control spending or influence the economy in a drastic way.


Friedrich Hayek is a famous economist who is well-known for his endless contributions to the field of economics. His approach is mostly in favor of free-market capitalism, which is where the amount of government intervention is minimized greatly and the role of the market is maximized.

The Theory of Monetarism

Monetarism is the view that money supply growth really matters for the business cycle. The economist who is mainly in support of this theory is Milton Friedman. The task of limiting or expanding the money supply in the economy should belong to a central bank.

Differences and Similarities

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