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:

1. Identify and describe the Keynesian actions.
2. Explain why the government chose to apply these measures.
3. 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)
4. Theorize how the outcome might have differed if the government had followed a more classical (hands off) economic plan.

Answer 1

Generally during the perios of 2000's the government of U.S had applied the keynesiam economic methods inorder to stimulate their economy against the global financial crisis that was started in 2007. President of U.S, Obama started several important fiscal policies during the Great Recession that took place during mid 2000's.

Also the government has increased it's investments on the infrastructure, unemployment benefits and also in education which ultimately increase the demand of the customer and also leads to the full employment all this fiscal policy measures has been adopted by passing Economics stimulus Act. Thus due to this fiscal policy measures that are adopted by the government that slowed the cost of healthcare and also education, decrease the unemployment in the short run whereas in the long run during the year 2009 it has lead to the increase in GDP by nearly 15%, Employment increase by 8%, annual federal deficit was decreased by 58%, also inflation got fell over by 3% from q1 1989 to q4 2008 on average basis.

For suppose if the government would have followed the classical economic plan instead of the keysenian then the impact would have been different when compared to know as the classical economic plan that is concentrated on the free market economy and emphasis that the GDP of the economy increase with the increase in the saving of the people as these savings are converted into the investments and therefore forms a component of a real GDP but this doesn't work during the recession period as the borrowing capacity exceeds the saving in the economy which in turn results to fall in the GDP since investment expenditure will be less than that of level of aggregate saving.