Question

Outline and explain one criticism some people have regarding Keynesian Economics

Answer 1

1) Borrowing causes higher interest rates and financial crowding out.

2) Resource crowding out.

3) Inflation. A problem of fiscal expansion is that it often comes too late when economy is recovering anyway and therefore, it causes inflation.

4) The difficulty of predicting output gap. 

5) Ricardian equivalence. 

6) Encourages big government.

7) Time Lags. It takes a long time to change aggregate demand by the time AD increases it may be too late and it leads to inflation.

8) Break-down of Phillips Curve trade-off. 

[Source: Criticism of Keynesian Economics - Economics Help ]