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Explain the differences between Hayek’s and Keynes’s views on business cycles and the role of government intervention....

  1. Explain the differences between Hayek’s and Keynes’s views on business cycles and the role of government intervention. In particular you should comment on what each viewed as the cause of business cycles and what they thought the government should do during a recession.

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Hayek's View

Hayek's theory is known as "over-investment" as it considers "over-investment" in the resources of the economy in the capital goods sector as the only cause of the business cycle, and excessive investment occurs when there is a lot of money expansion.

This boom in the economy is a result of a much lower interest rate than the natural interest rate through increased money supply. The availability of easier credit and lower interest rates encourage producers to offer more rotary production methods.

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