Keynesian economics - Investment & Finance Definition
An economic theory, created by John Maynard Keynes, that advocates governments becoming involved in the markets and economy in order to produce price stability and economic growth. Keynes said that insufficient demand results in unemployment, and too much demand results in inflation. To influence demand levels, the government should adjust its spending and taxation policies. He outlined his theory in The General Theory of Employment, Interest, and Money, which was published in 1935. His ideas clash with those of classical economists, such as Adam Smith, who believe the government should not get involved in the markets or econ-omy. The severe level of unemployment in the U.S. and Europe following the Great Depression of 1929 gave Keynesian economists more prominence.