This is a theory of total spending in the economy and its effects on output and inflation. Beliefs are that both fiscal and monetary policy affects aggregate demand (total spending in the economy). If government spending increases, output will increase. Prices and wages respond slowly to changes in supply and demand, resulting in shortages and surpluses.
A good reference is Alan Blinder’s article at: www.econlib.org/library/Enc/keynesianEconomics.html
Posted by Boston Institute of Finance
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