Keynes and Hayek Economic Theories
Keynes and Hayek are two of the most well known contemporary economists. The two have provided significant influence on the nature of economy in terms of eliminating the occurrence of a recession. According to Keynesian economics, the short run economic output, usually during times of recession, the major influence is the aggregate demand, which is the total expenditure in the economy (Kelly & Williams, 2017). The theory points out that the demand does not equal the aggregate supply and may be affected by numerous factors resulting in inflation, impact on employment, and production (Kelly & Williams, 2017). On the other hand, Hayek proposed a theory of economic planning where he recognizes the importance of free markets to ensure efficient exchange and use of resources maintained through price mechanisms. In the Keynesian perspective, the ideal is to ensure that government expenditure controls the market to prevent the incidence of a recession (Kelly & Williams, 2017). However, Hayek’s belief is that free markets have the ability to cope with the boom and bust cycle of the economy.
Fear the Boom and Bust Cycle Video
The video presets accurately the major points on the Keynesian and Hayek theories of economics. On the one hand, Keynes seeks the use of government influence as an effective measure of taking control and eradicating recession. This practice is the most appropriate for averting the adversities of the economic depression (EconStories, 2010). However, Hayek seeks a free market where interest rates and market prices are allowed to determine the ability to recover from a recession. This perspective considers the need to enable privatization of the economy to give more control to individual participants in the market (EconStories, 2010). The US economy currently resembles a little of both theories. While the government allows for a free market where the fluctuations of demand and supply affect market prices, it also seeks to enforce its power to control the economy and prevent potential recession.
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References
EconStories, (2010) "Fear the Boom and Bust": Keynes vs. Hayek Rap Battle . YouTube, retrieved from https://www.youtube.com/watch?v=d0nERTFo-Sk
Kelly, M. & Williams, C. (2017) BUSN (10 th Ed.) . Cengage South-Western.
