Keynesian Economics, the 1929 Crisis, and the Oil Crisis

Keynesian Economics

Keynes' famous proposal is based on the idea that insufficient demand causes unemployment. This innovative concept posits a balance between revenues and expenditures. It discusses the notion of production potential as something that depends on labor, capital, and technology. Production potential is obtained whenever inputs are utilized normally, with their changing production rates. This does not lead to short seasons in production methods and other production. Therefore, aggregate demand is the variable that causes inflation or unemployment. Due to negative thoughts, Keynes proposed that inequalities would have to be corrected with certain fiscal or tax policies.

The Great Crisis in History: The Crisis of 1929

The first decade of the 20th century witnessed a great development of large factories. This rise led to innovations in production processes, which caused a rapid increase in production and work.

In the late 1920s, demand could not sustain production, resulting in a series of phenomena:

• Companies could not sell excess stocks.
• There was a diminution of benefits.
• There was minor investment by companies.
• Unemployment and falling demand appeared.

The Oil Crises (1973 and 1979)

Between the 1950s and 1960s, there was great economic expansion. During this period:

• There was increasing state intervention in the economy.
• There was great development of world trade.
• Governments were able to manage unemployment and inflation.

At the end of the 1960s, symptoms of inflation and the first international imbalances appeared, reducing sales and profit. In 1970, the decline of this period of economic growth began. The economy of the Arab countries was pretty weak, but they had control of all the oil. In 1979, the situation worsened with another oil price increase, leading to increased unemployment, inflation, and public deficits. The solution to this crisis was complex:

• Public spending could not be increased because of the deficit.
• Consumption could not increase.
• There was no investment.
• Exports were insufficient.