Econ Essay Example | Topics and Well Written Essays - 250 words - 2

Econ - Essay Example Economic problems and such as recession naturally happen subject to correction by the economy itself. Keynes, on the other hand, argued for a more reactive response from the government because without it unemployment will only extend. To battle this, government intervention is necessary because fiscal policies can stimulate the economy. The state cannot wait for the self-correction of prices and wages. Developed during the Great Depression, this theory assumes that prolonged unemployment will only hurt the economy. The solution to a swift revitalization to overcome a recession is by implementing government spending from taxes. This multiplies aggregate demand to get closer to a leveled real Gross Domestic Product. To prevent staggering inflation, the government only needs to increase taxes or decrease spending (Cliffnotes n.p.). From the fiscal policy of the United States during the current economic recession, we see that the government applies a more interventional approach in hopes of invigorating the low level of unemployment and to impede it from prolonging. This now could lead to a ‘crowding out’ because of higher interest rates which reduces investment and consumer expenditures that are affected by it. This diminishes the merits of the fiscal policy as implemented by the government (Cliffnotes n.p.). Bibliography Baumol, William J. and Alan S. Blinder.