Table of ContentsIntroductionEvaluating PhilosophiesConclusionReferencesIntroductionThe Keynesian school and the Austrian school of economics have conflicting beliefs about how the economy should be managed. The Austrian school approaches economics with a laissez-faire ideology, where the economy should be able to self-regulate to a point of equilibrium. Contrary to this, Keynesians argued that the government should intervene in the economy. The two men who embody this conflict of opposing philosophies are the founder of Keynesian economics John Maynard Keynes and the famous Austrian economist Friedrich Hayek. In the following essay I will give my views on the economic philosophy that I consider most appropriate for managing the economy in the long term. Say no to plagiarism. Get a custom essay on “Why Violent Video Games Should Not Be Banned”?Get the original essayEvaluate PhilosophiesA national fiscal policy that the government uses to manipulate tax rates and government spending. Government intervention in the economy through fiscal policy can contribute to the growth and stability of the economy. In the early 1930s, the economy was managed on the basis of the Austrian economy. It was believed that “all public expenditure should be financed by taxes”. As unemployment increased during the Great Depression, government spending also increased. Despite this, the government maintained a balanced trade account by reducing other expenditures. The government's refusal to run a trade deficit has only further damaged the economy. Keynes believed that if the government increased spending, it would stimulate the economy and reduce unemployment. By spending money in the economy, the government creates jobs, which leads to increased consumer consumption. This consumption increases aggregate demand, which in turn increases income. This is called the multiplier effect. Running a trade deficit, as Keynes advises, rather than saving to stimulate investment, as Austrian economics suggests, can lead to substantial growth in the economy. Is this a sustainable philosophy for the economy in the long term? The United States of America has the largest and most powerful economy in the world. The United States consistently runs a trade deficit, but its economy remains stable. The global dominance of the American economy reinforces Keynes' theory that running a trade deficit through fiscal policy can be a viable method of growing and sustaining an economy in the long term. One of the fundamental beliefs of Keynesian economics is that markets cannot clear because wages and prices are rigid. Workers are not receptive to wage cuts, which do not allow the market to clear up quickly. The Austrian economy assumes that wages and prices will rise and fall and that, as a result, the market will clear up. This seems unrealistic, but looking at the market in the long term, all fixed costs such as salaries are flexible and no longer binding. In the long run, the “invisible hand” will regulate these prices and wages to a new equilibrium point, because they are not sticky in the long run. The time it will take for the market to adapt could be quite long. It is undoubtedly more beneficial for the economy to benefit from an expansionary fiscal policy rather than waiting for the invisible hand to regulate the market. A faster recovery could be more beneficial for the economy in the long run. The economic objective of the Keynesians is to increase495)