The theories of John Maynard Keynes, known as Keynesian economics, ____ the idea that governments should ____ their countries' economies, instead of just ____. Specifically, Keynes ____ federal spending to ____ downturns in business cycles. The most basic principle of Keynesian economics is that demand—not supply—is the ____ an economy. At the time, conventional economic wisdom ____ that supply creates demand. Because ____—the total spending for and consumption of goods and services by the private sector and the government—____, total spending determines all economic ____, from the production of goods to the employment rate. Another basic principle of Keynesian economics is that the best way to ____ is for the government to increase demand by ____ the economy with capital. In short, consumption (spending) is the key to economic recovery. These two principles are the basis of Keynes' belief that demand is so important that, even if a government has to go into debt to spend, it should do so. According to Keynes, the government boosting the economy in this way will stimulate consumer demand, which in turn spurs production and ensures full employment. Although ____ after World War II, Keynesian economics has attracted plenty of criticism since the ideas were first introduced in the 1930s. One major criticism deals with the concept of ____—the expansion of federal initiatives that must occur to enable the government to participate actively in the economy. Rival economic theorists, like those of the Chicago School of Economics, ____ that: Economic ____ are part of the natural order of business cycles; direct government intervention only ____ the recovery process; and federal spending ____ private investment. The most famous critic of Keynesian economics was Milton Friedman, an American economist best known for his ____ of free-market capitalism. Considered the most influential economist of the second half of the 20th century—as Keynes was the most influential economist of the first half—Friedman ____ monetarism, which ____ important parts of Keynesian economics. Keynes ____ that fiscal policy—government ____ and tax policies to influence economic conditions—is more important than ____ policy—control of the ____ money ____ to banks, consumers, and businesses. In contrast, Friedman and fellow ____ held that governments could ____ economic stability by targeting the ____ of the money supply. In short, Friedman and monetarist economists advocate the control of money in the economy, while Keynesian economists advocate government expenditure. For example, while Keynes believed that an ____ government could moderate recessions by using fiscal policy to ____ aggregate demand, ____ consumption, and reduce unemployment, Friedman criticized deficit spending and argued for a return to the free market, including ____ and ____ in most areas of the economy, supplemented by a ____ of the money supply.

Vocabulary: Economics What Is Keynesian Economics?

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