Question

1) Does a long term Keynesian type recession change permanently increase or decrease output?

2) please comment about how effective fiscal policy could be in recessions expected to be short-term versus those expected to be long lasting

Answer 1

Liquidity Trap : - A liquidity trap is when low- Interest and rates fail to boost demand e For example : If confidence is very low people won't borrow even though it is cheap. Also very low interest rates can make bank unprofitable, so they enduce lending. General Glut : Il saning is high and consumer spending low, firm will have a lot of unsold goots. In this climate, they will cut back on annestment: Nochise Muhal. и 63 - кечnes Popul oroved that a the idea of a multiplier effect. The idea fall in injections into the economy has a knock- on effect and the final impact may be greates than the initial. If a firm reducers investment, people love their jobs, and this higher unemployment reacts to lowes spending and affects everyone in the economy Paradox of thrift : In a recession, people take a rarional approach to be risk-averse - fearing a possible recession, they increase saning and spend less when this lower spending des aggregated, it lead to tower demand in the economy.

in the use to a general as and with the Inflation refers to a general en ces of goods and sennices over a period 6 time. The higher the rate of Inflation, The smaller the percentage of 900 Services that can be purchased same amount of money as before So long term keynession type recession, Change permanently increase or decrease output. it decrease output for a Period of recession Polar Because during Recession people save money than expense After recession over output lenes increase.

on the economy. The (2) Fiscal Policy is when our goverment uses it Spending and taking Powers to have an impact economy. The combination and interaction of your expenditure and revenue collection is a delicate balance that require good timing and a little bit of luck to get it right. fiscal poeng can be used to influence both expansion and contraction of GDP as a measure of economic growth. When the out is exercising its powers by lowering taxes and increasing their expenditure they are practicing expansionary fiscal policy. when the gout. Increase the amount of debt it issue auring expansionary fiscal Policy, issuing bonds in the open market will end up competing with the private Sector that may also need to issue bond at the same time. This effect known as crowcling out. Fiscal policy affect the economy through several channel, with varying time lage. In the short run, it can impact the level of activity in the economy by changing. aggsgate demand for Goods and semices This means that fiscal policy can play. a role in stabilizing economic fluctuation.