Reference no: EM131114850

Economics Reply

REPLY TO EACH STATEMENT IN A 100 WORDS EACH. GIVING YOUR OWN THOUGHTS....

1. The government could help the economy overcome the recession by building more highways. By creating new highways, the government would create jobs for forestry to clear the land for the highways, construction companies would be hired to prepare and pave the roads, and electricity might be run for streetlights. When the government pays to build highways, they affect G (government purchases) by increasing spending. This in turn increases C (consumption) as consumers are paid and able to have more discretionary income, they begin to spend their money and boost the economy. Store owners would be able to gain enough revenue to build new stores near the new highway systems creating even more jobs. Creating jobs allows prices to stay the same, since the government would not have to create a tax break to keep the economy in good standing.

The Modern Keynesian model demonstrates that the government should not struggle when balancing their budget as revenues are declining, and also that the government should fund public works programs to generate revenues (Carling, 2012). Allowing for spending to build highways will guide the government toward a positive recovery position in a recession. Movement is the key to creating jobs and revenue to strengthen and grow the economy, and must begin with the help of our government.

2. The government could increase GDP or gross domestic product by increasing government spending on medical research. This policy would help increase aggregate demand by increasing consumption, and government spending. By the government increasing spending on medical research they are creating more jobs. Those people will then have more money to spend on goods. Also, government spending would naturally increase, because they are putting more money into medical research which increases their spending.

By the government increasing spending for medical research it could cause the prices to increase. Although the price increases, more jobs are created making higher prices more manageable for consumers. By consumers earning more money, they are able to easily pay higher prices. I used the Modern Keynesian model while choosing an expansionary fiscal policy. The Keynesian model pushes for government spending during a recession. The belief is that government spending resolves unemployment caused by inadequate AD or aggregate demand.