Question

12.   Is Fisher’s debt-deflation theory of depression an alternative (substitute) for or complement to Keynes’s theory? Briefly explain.

Answer 1

The theory is debt deflation suggests recessions and depressions are due to the total increase in debt due to deflation and to people defailing on consumer loans and loans. Debt deflation is a theory. Irving Fisher developed the theory after the 1929 Wall Street Crash and the subsequent Great Depression.

Irving Fisher developed the theory after the 1929 Wall Street Crash and the subsequent Great Depression. Prior to Fisher's exploration of it, the debt deflation hypothesis was familiar to John Maynard Keynes, but he found it lacking in contrast to what would become his liquidity preference hypothesis.

Keynesian Economics is a theory according to which the government needs to raise demand in order to boost production. Keynesians agree that the biggest driving force in the economy is customer demand. The principle thus promotes expansionary fiscal policy.

So both are complimenting each other.

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