Keynes published and introduced his economic theory in 1936, during the Great Depression, and gave guidance for government in formulation of monetary and fiscal policies. His model was widely acknowledged during recession times when classical economic model somehow failed to effectively and productively solve some economic problems such as unemployment. Although China’s economy is believed to have “Chinese characteristics” and cannot hastily adopt a Western model, Keynesian economics is still believed to receive embracement in China, as government intervention is wider and deeper than most of other economies of such large size. Therefore, the main issue this essay concerns with is the influence of Keynesian on China’s economy reflected by GDP.
This work will discuss Keynesian economics and its effects on China’s economy in the following order. First of all, a brief background of the Keynesian economic model is introduced. Main focus of the general theory and the difference compared with classical models are explained next in the same major section. They followed by the theory’s application, modification and opposition. The second major section mainly discusses Keynesian’s effects on China’s economy. Firstly, the country’s economic history and the introduction of Keynesian need to be noted. Then this paper discusses the influence of its politics and its opening up policy, and the relationship with Keynesian economics. The recent financial crisis as a special incident and Chinese government’s response to it are then discussed, including proof of the practice of Keynesian in China, especially the four trillion stimulus package. A critical evaluation is then given, aimed at analyzing the effects of China’s macroeconomic policies and major problems of its economy. It followed by a conclusion of this essay.
2. Keynesian economics
The general theory of Keynesian economics was first raised up and elaborated by British economist John Mayer Keynes in his book The General Theory of Employment, Interest and Money, which was published in 1936. This was during the Great Depression, when Keynes saw economic problems that could not be solved under classical economic theories, especially unemployment. His proposed policies in recession times, such as government deficit, had great influence on Western countries during the Great Depression and World War II.
Keynes in his book suggested the solution to stimulate the economy during recessions. He provided two tools: one is through monetary policy, which means to lower the interest rate; the other is through fiscal policy, referring to government investment in public sectors. He focused a great deal on the issue of unemployment, and believed that despite the success of the traditional economic system in aspects like resource allocation, it did not solve the problem of unemployment (Klein & Keynes, 1968). Although one possible solution to this problem in a capitalistic economy is to leave it to the...