The United States Economy: Recession Policy Recommendations

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The United States economy: Recession policy recommendations According to classical Keynesian theory, the best way to deal with a recession is for the government to spend at a deficit to stimulate demand. Waiting for the business cycle to rectify itself, at least during a very severe economic downturn, shows little understanding of real world economic and psychological wisdom. When people are worried about losing their jobs, they spend less and 'hide money under the mattress.' They do not buy consumer goods, borrow money, or begin new enterprises (Chapter 4, 2013). As a result of this contraction in demand, employers likewise begin to cut back on production and only try to sell their unsold inventory. Eventually, they have to let workers go. Keynes suggested that by spending money through public work projects, the government could temporarily assume the role of private industry by providing jobs (Chapter 4, 2013). It is a mistake to assume that Keynes believed that government intervention was always good. Rather, he believed that government intervention was sometimes necessary to correct the ebbs and flows of the business cycle. The government, according to Keynes should spend at a deficit and have a surplus or a balanced budget during times of prosperity. Despite the fact that the U.S. currently harbors a deficit, Keynesian policy should not be viewed as irresponsible. By stimulating the economy, eventually tax revenue will be boosted and the U.S. will be able to
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