Keynes basically said that, “it is by this process of handing money around… that the economy is constantly revitalized” (Heilbroner, 265). He said that the national income is the biggest indicator of how wealthy a nation is, and the income of a nation is determined by its flow via people buying and selling goods. Also, in A Treatise on Money Keynes disproved the see-saw theory, which stated that when savings goes up, investment goes down and vice versa. The see-saw theory was invalid because it didn’t have an explanation for prolonged depressions such as the Great Depression. To replace the see-saw theory he introduced the elevator theory which he said that the economy can stall at any level, just like an elevator. Keynes said that this is because to avoid recession, the economy must constantly expand, but that is impossible because the capital expansion of businesses are restricted by the business market. So, depressions can last for a long time and if nothing is done, can be
Keynes basically said that, “it is by this process of handing money around… that the economy is constantly revitalized” (Heilbroner, 265). He said that the national income is the biggest indicator of how wealthy a nation is, and the income of a nation is determined by its flow via people buying and selling goods. Also, in A Treatise on Money Keynes disproved the see-saw theory, which stated that when savings goes up, investment goes down and vice versa. The see-saw theory was invalid because it didn’t have an explanation for prolonged depressions such as the Great Depression. To replace the see-saw theory he introduced the elevator theory which he said that the economy can stall at any level, just like an elevator. Keynes said that this is because to avoid recession, the economy must constantly expand, but that is impossible because the capital expansion of businesses are restricted by the business market. So, depressions can last for a long time and if nothing is done, can be