Introduction
Debates about macroeconomic policy will tend to focus on a couple of different schools of economic thought – the classical school and the Keynesian school, or derivatives thereof. One of the major debates that arises is with respect to whether or not government should increase spending in order to fight recessions. This debate also relates to things like having a balanced government budget. The latter is policy in many jurisdictions, mainly in the United States, reflecting a particular fiscal policy view of the classical school, which the Keynesian view is more often reflected in national-level policy, especially outside of the United States.
Increased Government Spending
With respect to how to best handle a recession, increased government spending is typically viewed as a yes/no decision. Keynes argued that government spending should be increased in order to help manage a recession, and this view is opposed by classical economists. Perhaps the most obvious recent example of this debate being put into practice came during 2009, when during the depths of recession, President Obama sought to increase spending to help stabilize the economy, and this was opposed by Republicans. There was obviously a political dimension to this as well, but the roots of the conservative position lie in the economic debate.
Keynes is credited with popularizing the philosophy that government spending can be used during times of recession to bolster the economy. The underlying principle is that the economy is comprised on a number of different growth drivers – government spending, business investment, net exports and consumer spending. In a recession, consumer spending and business investment decrease, and this means that if all else is equal, the economy will decrease as well. The government can, however, offset this decrease with an increase in government spending. Furthermore, there is a multiplier effect to an increase in government spending...
References
Bernheim, D. (1989) A neoclassical perspective on budget deficits. Journal of Economic Perspectives. Vol. 3 (2) 55-72.
Brown, E. & Collier, B. (1995) What Keynes really said about deficit spending. Journal of Post Keynesian Economics. Vol. 17 (3) 341-355.
Investopedia (2018) What is deficit spending. Investopedia. Retrieved June 3, 2018 from https://www.investopedia.com/terms/d/deficit-spending.asp
Khan, M. & Aziz, G. (2011) Neoclassical vs Keynesian approach to public policy – the need for synthesis. MPRA Paper No. 62856.
Foreign Policy of China (Beijing consensus) Structure of Chinese Foreign Policy The "Chinese Model" of Investment The "Beijing Consensus" as a Competing Framework Operational Views The U.S.-China (Beijing consensus) Trade Agreement and Beijing Consensus Trading with the Enemy Act Export Control Act. Mutual Defense Assistance Control Act Category B Category C The 1974 Trade Act. The Operational Consequences of Chinese Foreign Policy The World Views and China (Beijing consensus) Expatriates The Managerial Practices Self Sufficiency of China (Beijing consensus) China and western world: A comparison The China (Beijing
(Shah, 2010) F. Impact of Structural Adjustment Policy Preconditions According to Shah the preconditions impact poorer countries in a devastating manner and it is reported that the following factors result in "further misery for the developing nations" and ultimately keep these countries dependent on nations that are developed: (1) Poor countries must export more in order to raise enough money to pay off their debts in a timely manner; (2) Because
Fiscal Policy Between 2007 and 2009 the U.S. economy experienced a severe recession. In an effort to stimulate the economy, the federal government passed a stimulus package. Explain the federal government's use of fiscal policy (the stimulus) to promote growth and employment. Support your ideas with concepts found in the assigned reading. Include the following in your response: Government spending can contribute a significant amount of economic activity into the economy. When
Future Ahead In the face of global credit crisis, it is expected that Fed has to make further changes such as cut in the more important federal funds rate to maintain stability. The pattern of growth is likely to change showing a slow down. "Mark Zandi, chief economist at Moody's Economy.com, has trimmed his forecast to show economic growth of about 2.5% in the current quarter, down sharply from 4% in
To increase effective demand, Keynesians believe the government must balance the economy with deficit and increase expenditure. However, the constant alternation between booms and recession is causing the booms to get shorter while the recessions become longer. This phenomenon is the result of empirical evidence that indicates that in the end, the interest rates decrease. However, this situation creates a problem of capitalism as the rich increase their wealth while
In turn, low consumption leads to low level of economic growth, but also to low inflation. Gross Domestic Product is also distorted by taxation, as every integrant component - consumption, investment, savings and net foreign position are deeply influenced, directly or indirectly, by level of taxes. A liberal fiscal policy, with lower taxes, encourages individuals and companies to develop and register important economic growth rates, but induces an increasing
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now