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Browse: Home / KNOWLEDGE / Economics

What does Keynesian Economics say the government should spent money on during and to get out of a recession or?

H J: What does Keynesian Economics say the government should spent money on during and to get out of a recession or?
What does Keynesian Economics say the government should spent money on during and to get out of a recession or depression to create Jobs in the private sector in other words what does keynesian economics say the government should do to put money in the hands of the Consumers or to get Businesseses to hire again ?

Answers and Views:

Answer by Pfo
“Something of value”. What that is is not strictly defined, but Keynes warned it should not be wasted, as in don’t pay one group of people to dig holes and another group of people to fill them.

Answer by Farax
Keynesian Effect

Following John Maynard Keynes, many economists recommend deficit spending to moderate or end a recession, especially a severe one. When the economy has high unemployment, an increase in government purchases creates a market for business output, creating income and encouraging increases in consumer spending, which creates further increases in the demand for business output. (This is the multiplier effect). This raises the real gross domestic product (GDP) and the employment of labour, and if all else is constant, lowers the unemployment rate. (The connection between demand for GDP and unemployment is called Okun’s Law.) Cutting personal taxes and/or raising transfer payments can have similar expansionary effects, though which method has a better stimulative economic effect is a matter of debate.

The increased size of the market, due to government deficits, can further stimulate the economy by raising business profitability and spurring optimism, which encourages private fixed investment in factories, machines, and the like to rise. This accelerator effect stimulates demand further and encourages rising employment. Increase in government payroll has been shown to depress the economy in the long run.

My take:

To put it short they put it in both hands, the banking bailout was done so they would start lending to businesses again, they failed to do this. This would have helped so more workers could be hired and get the business started again.

3.65 million jobs have been created because of the stimulus package Barack Obama passed into law and another is needed to get another 4 million into work. This is according to the non-partisan Congressional Budget Office.

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