Keynesian Economics Shabanu Popatiya ECON 330 Professor Paul Notley Wednesday, April 13, 2016 Although Keynes died more than half a century ago, his insights go a long way toward explaining the economic challenges we face today. According to Keynes, the root cause of economic downturns is insufficient aggregate demand. When the total demand for goods and services declines, businesses throughout the economy can see their sales fall. Lower sales cause firms to cut back production and to lay off workers. The rise in unemployment and declining profits further decrease demand, leading to a feedback loop with a negative ending. The situation reverses, Keynesian theory says, only when some event or policy increases aggregate demand. Prior to Keynes' theory, mainstream economic thought was...