What economic theory advocates for increased government spending during economic downturns?

Keynesian economics is the economic theory that advocates for increased government spending during economic downturns. This approach is based on the belief that during periods of recession, decreased consumer demand can lead to lower production, higher unemployment, and overall economic stagnation. John Maynard Keynes, the founder of this theory, argued that government intervention through fiscal policy—specifically by increasing public spending—can help to stimulate demand, encourage consumption, and ultimately foster economic recovery.

In essence, Keynesian economics posits that when the private sector is not spending enough to support the economy, the government should step in to fill that gap by investing in infrastructure, social programs, and other public initiatives. This influx of government spending can activate the economy, creating jobs and encouraging further private spending.

In contrast, monetarism focuses on controlling the money supply to manage inflation and emphasizes the role of central banks, while Austrian economics generally promotes less government intervention in the market. Supply-side economics emphasizes tax cuts and deregulation to encourage production and investment rather than direct government spending as a means of stimulating the economy.