John Maynard Keynes’ General Theory (1936) redefined economics by prioritizing aggregate demand over supply. Challenging classical self-correction, it advocated government intervention to combat unemployment via fiscal stimulus. Introduced liquidity preference, multiplier effect, and “animal spirits.” Shaped modern policies during crises like 2008 and COVID-19. Legacy: Demand-driven economics, state role in stabilization.
government intervention
Economic Externalities
Economic externalities are unintended side effects of economic activities that impact third parties, either positively (e.g., education benefits society) or negatively (e.g., pollution harms public health). These spillover effects lead to market inefficiencies, as costs or benefits aren’t reflected in prices. Governments address externalities through tools like taxes (Pigouvian taxes), subsidies, regulations, and tradable permits (cap-and-trade). Understanding externalities helps policymakers and businesses align private incentives with social welfare for better economic outcomes.