The Keynesian Doctrine and Intangible Assets: Connecting Economic Policies and Accounting Principles

The Keynesian Doctrine and Intangible Assets: Connecting Economic Policies and Accounting Principles

Introduction:

The Keynesian doctrine, named after renowned British economist John Maynard Keynes, revolutionized the way governments interact with the economy. This doctrine introduced the idea that the public budget could be used as a tool for fiscal policy, a concept that contrasted with prevailing economic theories at the time. Keynes argued that during economic recessions, the government could intervene and stimulate the economy through increased public spending. This approach, known as expansionary fiscal policy, aimed to boost aggregate demand, production, and employment. Conversely, during economic expansions, the government could utilize the public budget to prevent overheating by reducing public spending or increasing taxes to decrease aggregate demand.

Connecting Keynesian Economics with the Keynesian Model:

The Keynesian model of income determination incorporates various components such as consumption, investment, government spending, and the external sector. According to the model, the aggregate supply is horizontal, with rigid prices and wages. The multiplier effect, which measures the impact of changes in spending on overall income, increases when certain conditions are met.

Applying the Keynesian Model:

Let's consider a simple Keynesian model given by the consumption function: C = 100 + 0.2Y, where C represents consumption and Y denotes income. In a closed economy with autonomous investment and autonomous government spending equal to 10 each, if the marginal propensity to consume is 40% of income, the equilibrium income in the model and the tax rate applied to income will be determined.

Exploring the New Keynesian Theory:

The New Keynesian theory introduces the concept of menu costs, which explains the stickiness of prices. It argues that firms face costs when adjusting prices, leading to price rigidities and deviations from equilibrium. This theory also emphasizes the role of expectations, imperfect competition, and nominal rigidities in shaping economic outcomes.

Connecting Economic Policies and Accounting Principles:

While the Keynesian doctrine focuses on fiscal policy and its role in stabilizing the economy, accounting principles provide guidelines for recognizing intangible assets resulting from research and development activities. According to accounting standards, expenses incurred during the research phase should be recognized as expenses, and no intangible assets should be recognized. However, if an entity can demonstrate the feasibility of completing the development of an intangible asset and its potential economic benefits, recognition is possible.

Applying Accounting Principles to Intangible Assets:

To recognize an intangible asset resulting from internal development, an entity must demonstrate technical feasibility, intention to complete and use or sell the asset, the ability to use or sell it, the expected economic benefits, availability of resources, and the ability to reliably measure development costs. The development phase is considered more advanced than the research phase, making it possible to identify and recognize intangible assets.

Conclusion:

The Keynesian doctrine and accounting principles for intangible assets may seem unrelated at first glance. However, both highlight the importance of government intervention, economic stability, and the recognition of valuable assets. By connecting these concepts, we can gain a deeper understanding of how fiscal policies and accounting standards shape economic and financial landscapes.

Actionable Advice:

• 1. Governments should consider the principles of Keynesian economics when formulating fiscal policies, especially during economic downturns. Expansionary fiscal measures, such as increased public spending and tax cuts, can help stimulate aggregate demand and stabilize the economy.

• 2. Entities engaged in research and development activities should ensure compliance with accounting standards when recognizing intangible assets. Proper documentation, feasibility studies, and the ability to measure costs accurately are essential in determining the recognition of such assets.

• 3. Individuals interested in understanding the Keynesian model and its implications should explore reliable educational resources, such as academic lectures and tutorials, to gain insights into its application and relevance in modern economic contexts.

By connecting economic theories and accounting principles, we can broaden our perspective on how governments and businesses navigate economic challenges and make informed decisions. Understanding the Keynesian doctrine and accounting standards for intangible assets can contribute to more effective policy-making and financial management.