Which economic theory suggests that government spending can benefit the economy during unemployment?

Keynesian theory posits that during periods of high unemployment, increased government spending can stimulate economic growth and reduce joblessness. This framework, developed by economist John Maynard Keynes during the Great Depression, emphasizes that aggregate demand—the total demand for goods and services in an economy—is a critical driver of economic activity.

When the economy is underperforming and unemployment is high, businesses may be reluctant to invest or hire due to decreased consumer spending. In such situations, Keynesian theory advocates that government intervention through fiscal policies, such as increased public spending or tax cuts, can help fill the gap in demand. By injecting money into the economy, the government can spur consumption and investment, leading to job creation and ultimately boosting overall economic activity. This approach is particularly effective in times of recession when private sector demand is insufficient.

In contrast, classical theory emphasizes self-regulating markets and argues that economies will naturally adjust over time without government intervention. Monetarism focuses on the role of government in controlling the money supply as a means to regulate the economy, while the rational expectations theory suggests that individuals make decisions based on their expectations of the future, which can sometimes lead to them disregarding government action. None of these alternatives advocate for increased government spending as a means to combat