Final answer:
Keynesian economics is a macroeconomic theory that suggests government intervention in the economy can stabilize it during recessions and boost economic growth. Increased spending by one group can lead to increased incomes for other groups, as one person's spending becomes another person's income. Keynesian policies involve increasing government spending during downturns and using contractionary fiscal policy when the economy is operating above its potential GDP.
Step-by-step explanation:
Keynesian economics, the subject of this question, is a macroeconomic theory that suggests government intervention in the economy through fiscal policy can help stabilize it during recessions and boost economic growth. According to Keynesianism, if one group in the economy spends more, the incomes of other groups will increase, as spending by one group becomes the income of another group. This increased income can then lead to more consumption and investment, further stimulating the economy.
Keynesian economics dominated U.S. fiscal policy from the 1930s to the 1970s, with the government increasing spending during downturns to increase aggregate demand and stimulate economic growth. The Keynesian policy also involves using contractionary fiscal policy, such as tax increases or government spending cuts, when the economy is operating above its potential GDP to control inflationary pressures.