John Maynard Keynes in the Field of Economic Theory, Essay Example

Prior to the involvement of John Maynard Keynes in the field of economic theory, economists commonly held the belief that upholding the free market would reduce unemployment rates provided that workers were willing to take lower wages. Keynes contradicted this theory, instead proposing that the availability of jobs is dependent upon aggregate demand, which is defined as the total demand for a particular finished good or service in an economy at a point in time. This therefore takes into consideration the price levels that a company can charge for a produced based on its demand, in addition to the price that the production of the product required.

Keynes is still quoted in journals and news article today, because even though many economists still contend that the free market is an economic goal, they recognize the value of understanding supply and demand. Keynes recognized the importance of aggregate demand, which takes this relationship a step further by determining the amounts of a product that will likely be purchased at a variety of price levels. In this manner, the aggregate demand-aggregate supply model helps business owners and economists make more realistic projections concerning the value of a particular good.

In order to gain a greater understanding between the relationship of product demand and purchasing power, Keynes developed a commonly used mathematical model that takes into consideration the consumer spending, investment, government spending, net export, total imports, and total exports to understand demand in relation to other aspects of the economy. Therefore, he informed society that it is important to consider that economics must be considered in terms of all of the factors that have an impact on it, not just simply supply and demand as the free market would suggest.