Paper Summary:

This paper examines the definition and history of Keynesian economics. The paper identifies the six ideas essential to Keynesian economics as well as the tenets of the New Keynesian school of thought. The paper applies these theories to the current economic crisis to better understand both the problem and the government's proposed solutions. The paper shows how the problem facing the administration is that it has not staunched the job losses, primarily because it appears as though one of the conditions required for Keynesian theory to hold true - that of government actually being able to exert influence - is not holding this time. The paper concludes that it does not invalidate Keynesian or New Keynesian theory, but it calls into question the universality of its application to solve our domestic economic issues.

Outline:
Introduction
Keynesian Theory - History and Definition
New Keynesian Thought
The Economic Crisis
Conclusion

From the Paper:

"Keynes' theories diffused throughout economic and political circles rapidly, because they resonated with a world caught in the depths of the Great Depression. The world economic under the laissez-faire system had collapsed, highlighting deficiencies in that philosophy. The New Deal had begun to turn the US economy around - if not unemployment. While there is considerable debate as to the role the New Deal played in the turnaround, if the role was positive at all, observers at the time certainly felt that the government spending contributed to stabilizing and restoring the American economy. Thus, Keynesian economics fit well with the perception of economic events at the time. In periods of economic downturn, government spending could improve aggregate demand."

Sample of Sources Used:

• John Maynard Keynes biography retrieved May 4, 2009 from http://homepage.newschool.edu/het//profiles/keynes.htm
• Becker, Jo; Stolberg, Sheryl Gay & Labaton, Stephen. (2008). White House Philosophy Stocked Mortgage Bonfire. New York Times. Retrieved May 4, 2009 from http://www.nytimes.com/2008/12/21/business/21admin.html?_r=1&pagewanted=all
• Blinder, Alan S. (2008). Keynesian Economics. The Concise Encyclopedia of Economics. Retrieved May 4, 2009 from http://www.econlib.org/library/Enc/KeynesianEconomics.html
• Trumbull, Mark. (2009). Silver lining of shrinking economy: consumer spending up. Christian Science Monitor. Retrieved May 4, 2009 from http://features.csmonitor.com/economyrebuild/2009/04/29/silver-lining-of-shrinking-economy-consumer-spending-up/
• No author. (2009). Industrial Production. Federal Reserve Bank of New York. Retrieved May 4, 2009 from http://www.newyorkfed.org/research/directors_charts/pi_3.pdf

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