Keynesian Model: Conclusion & Recommendations

The Keynesian model of a modern, complex industrial economy suggests that an economy will NOT automatically self-correct when in a recessionary or inflationary gap. Indeed, a long and deep recession with very high unemployment is very possible. Keynesians conclude that modern industrial market economies are inherently unstable.
Stability at full employment can be achieved though through counter-cyclical fiscal policy by the Government. In other words, the government should increase deficits in recessionary gaps and run budget surpluses in inflationary gaps. Government policy can achieve stable full employment.

Stability at full employment can be achieved though through counter-cyclical fiscal policy by the Government. In other words, the government should increase deficits in recessionary gaps and run budget surpluses in inflationary gaps. Government policy can achieve stable full employment.