Keynes and Hayek Gaëlle and Rachel
John Maynard Keynes Friedrich Hayek
How these two economic models explain the full employment
Keynesian concept of employment has three conditions: reduction in the real wage rate increase in effective demand Inelastic supply of output at the level of full employment
How these two economic models explain the 1930’s crisis
Hayek’s theories: The boom is only an illusion Crises are due to lax monetary policy Have to liquidate everything to relaunch the country’s production Quantitative easing is a bad idea
Keynesian theories : No automatic forces A level of « under-employment equilibrium » It’s the government’s job to increase its spending not the population
Why the 2007/08 crisis is bringing back Keynesian theories back to life
Demand of goods declines Businesses see their sales fall off They cut back production They fire employees Unemployment rises
paradox of thrift: an increase in autonomous saving leads to a decrease in aggregate demand and thus a decrease in gross output which will in turn lower total saving