Question

Identify a period in history when any government in the world applied Keynesian economic methods in trying to stimulate their economy. (Do not use the Great Depression as an example). Address the following: Identify and describe the Keynesian actions. Explain why the government chose to apply these measures. Analyze the results of these actions both in the short run and long run (address issues like GDP components, multiplier effect, taxes, employment, inflation, interest rates, national debt) Theorize how the outcome might have differed if the government had followed a more classical (hands off) economic plan.

Answer 1

Ans .

During the period of 2000's the government of U.S. applied the Keynesian economic methods inorder to stimulate their economy against the global financial crisis that began in 2007. President Obama implemented significant fiscal policies during the Great Recession of the mid 2000's .

The government increased its spending on infrastructure , unemployment benefits , and education which ultimately increase the consumer demand and lead to full employment all this fiscal policy measure has been adopted through by passing Economics Stimulus Act .

As a result of the above fiscal measures adopted by the government the slowed the cost of healthcare and education , decrease the unemployment in the short run whereas in the long run during 2009 it has lead to increase in GDP by 15% , Employment increase by 8% , annual federal deficit was down by 58%, Inflation fell below the 3% average from Q1 1989 to Q4 2008.

If the government would have followed the Classical Economic plan instead of Keynesian than the impact would be different as compared to know as the Classical Economic Plan focused on free market economy and emphasis that the GDP of the economy increase with the increase in saving of people as these savings are converted into investments and thus form a component of real GDP but this doesnot work during the time of recession as the borrowing capacity exceeds the saving in the economy which in turn result leads to fall in GDP since investment expenditure will be less than level of aggregate saving .