Which economists agree with the Keynesian Model? Does government have the responsibility to try to maintain a stable economy?

Part 1

The two primary economic schools of thought are Keynesian economics and laissez-faire economics. According to John Maynard Keynes, economic prosperity can only be achieved through the government's concerted efforts and the private sector. Governments stimulate economic growth through the appropriate use of fiscal and monetary policies. A.C Piguo, an economics professor at Cambridge, shares similar thoughts with Keynes regarding unemployment. In his theory of unemployment, Pigou blames the rising unemployment levels to maladjustments between demand and wages. This is a notion that Keynes entirely agrees with. The two economists often agreed to disagree on economic issues. Richard Kahn, famous for the multiplier, influenced the Keynesian theory. Professor Brian Reddaway is a famous Keynesian. He is one of the first people to make a review of Keynes's General Theory.

Part 2

It is within the interests of all governments to ensure economic stability. Economic instability is the root of many crises occurring around the world. Financial stability requires governments to exercise fiscal responsibility. Government debts, for example, are capable of crippling an economy. Ecuador's banking crisis led to the collapse of the entire economy. Fiscal responsibility enhances the confidence of investors, firms, and consumers. Governments must put in place sensible macroeconomic policies to avoid economic instability. When people lack confidence in their government, they opt to invest elsewhere. This causes capital flight. During Ecuador's banking crisis in 1998-1999, the public had lost faith in both the government and the banking fraternity. The lack of confidence drove the country's economy further to the precipice.

Lack of confidence causes the general public to be risk-averse. Firms and consumers hold money instead of spending. High savings rates reduce the production levels of an economy drastically. This is because no one is willing to spend their money. Economists call this the paradox of thrift.

Economic instability means that the public does not fully participate in the building of the economy. The government also suffers due to low tax revenues. It is unable to provide essential services, which creates further political and economic instabilities. The economic policies a government chooses affect a nation's economy tremendously.

Governments utilize regulation to spur growth and boost confidence. Regulation also helps to avert harmful economic conditions like hyperinflation. There are different economic instability forms, including asset bubbles, inflation, banking crises, and bond crises. The hyperinflation that occurred in Zimbabwe in 2008 has been the cause of much misery. Today, the living conditions of the people of Zimbabwe are heartbreaking. Instead of coming up with appropriate policies to curb inflation, Zimbabwe's government decided to print money. This caused the country's currency to lose value rapidly.