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What are the principles of Keynesianism policies? Why did governments of the 1970's reject them? Keynesian economics were the second major breakthrough of the 1930's, many of the theories such as income determination were primarily the work of one man, John Maynard Keynes. He was interested in the level of national income and the volume of employment rather than the equilibrium of the firm or the allocation of resources. This was still a problem of supply and demand, but demand here means the total level of effective demand in the economy, and supply means the nations capacity to produce. When effective demand falls short of productive capacity unemployment and depression occurs. If demand exceeds the capacity to produce, inflation is caused. The heart of Keynesian economics consists of an analysis of the determinants of effective demand. If one ignores foreign trade, effective demand consists essentially of three spending streams, those being, consumption expenditures,...

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