The Keynesian Basic Principles

• The economy of Keynesian depends on the total demand of goods and service, this term is based on demand-side economics

• Boost In Demand ----> Boost In Economy, The boost in demand can increase in economy as businesses rise and more use of capital

• Inflation can occur but according to Keynesian "You stimulate demand ONLY when the economy is BELOW full capacity". For example when businesses are dying and unemployment, these kind of situations can be helped by the increase in demand

• Demand is in the control of government when the government spends more, as wages and salaries increase making people spend more, this increases GDP

• Government increases taxes and increase interest rates, making the inflation to slow down and they balance the economy making it to develop

Multiplier Effect

• Gov spends ₹100 → worker earns ₹100 → spends at local shop → shopkeeper earns, spends again.

• That ₹100 becomes ₹200, ₹300, ₹400 in the economy.

IS-LM Model

• IS curve = goods market equilibrium

• LM curve = money market equilibrium