Question

In detail describe why keynesian theory fails.

Answer 1

Keynesian theory fails because Keynesian economics basically says that when we have a recession in other words when people, the physiology of a population thinks that they're going into tough times, they restrict their spending and so they actually end up in rough times people spend less money so the economy contracts and when that happens the government needs to jump in and spend more money to offset that so the population spends less the government spends more to offset it and help economy get back on track. Now the theory is that in bad times government spends more to get the economy back on the track but in good times government's supposed to pay that money back and start in other words accumulating a surplus to pay the debt that they accumulated in rough times.

But when the country is doing well then they don't reverse the policy. They don't pay any of the money they borrowed and so the debt just goes higher and higher and higher.