To boost aggregate demand in the economy, the government should spend and invest heavily.Įven if the government needs to take on debts, for the sake of the economic health, it is the most direct means to accomplish its goal.
Keynes believed that it is aggregate demand that drives production and not supply. This stems from the ideology of renowned British economist John Maynard Keynes, the father of the Keynesian economics model, which is premised on the “level of investment in the economy must exceed its savings rate in order to promote economic growth.” A healthy level of inflation contributes to production increase as more money translates to more spending, which directly influences aggregate demand.
IN any Economics 101 class, students are often made to understand that a modest level of inflation is good for the economy as a whole.
