Keynes vs hayek

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John Maynard Keynes
“The General Theory Interest and Money” of Employment,

 The main ideas of Keynes´s theory are:
 Employment level is determined bythe aggregated

 The aggregated demand has to be increased.  The Government is the one that has to increase his

spending to create the aggregated demand.
 With the governmentspending comes the multiplier.
 The multiplier will bring healthy to economy.

“The General Theory Interest and Money”



 For Keynes is unthinkable to wait for a recovery ineconomy during a resecion, the impulse to the

aggregated demand must be immediately.

 He maintains the idea of the circular flow.  Saving is the worst thing to do, Keynes compare it to destruction. Business are driven by the animal spirits.  If the interest rate is high there wouldn't be


Animal spirits
 Describe

human emotions that drives consumer confidence. According toKeynes, animal spirits also generate human trust. spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do somethingpositive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits - a spontaneous urge to action rather than inaction, and not as theoutcome of a weighted average of quantitative benefits multiplied by quantitative probabilities”

 “A large proportion of our positive activities depend on

Pros and Cons
PROS Low interestrate High employment rate Avoid depression in short term Multiplier GDP incensement CONS Bubbles in economy Corruption Unreal growth No limit to costs Continual debt Inflation

Hayek Postulates
Economy of free market which means basically no bailouts  Boom and Bust cycles due to low interest rates  To much aggregation ignores human action and     

motivation, there is no reason to...
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