Question
Asked Feb 12, 2019
17 views

Keynesian economics defends budget balance. However, according to economists, budget balance may exacerbate the effects of the business cycle. Isn't it also a Keynesian view to use discretionary policy to smoothen the business cycles? Aren't those two views contradictory?

check_circle

Expert Answer

Step 1

To understand Keynesian economics, we need to focus on two important things. One, the importance of government and two, aggregate demand. Here, the first part of the question talks about Keynesian economists defending budget balance when a majority of the economists hold a view of a balanced budget worsening the impact of business cycles. 

Step 2

To explain the budget balance, we need to understand what is a budget. A budget is a statement of all the expected receipts and expenditures of the government in an accounting year. 
Keynesian economists say that a balanced budget is important as the revenues of the government and the expenditures are equal and this may reduce the effects of business cycles as when the economy is going through a recessionary trend, the government can interfere and increase expenditure and bring the economy into action.

Step 3

A lot of economists hold the view that a balanced bu...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Economics

Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Part 1 and Part II are independent. Please answer both parts. Part I: You are advising company ABC o...

A: To answer this question we need to evaluate present value of payments in  both the cases.The present...

question_answer

Q: Transmission and Amplification Mechanisms- Ask FRED ALFRED ty Percent of Value of Loans Secured by C...

A: a.Transmission and amplification mechanisms:From the given graph, the approximate average percent of...

question_answer

Q: Dynamic aggregate demand (AD) can be derived using the quantity theory of money. Label the equation ...

A: The quantity theory of money:The quanity thory of money equation can be written as follows:

question_answer

Q: Stacked Monetary Policy- Ask FRED The accompanying graph depicts the velocity of the M2 money supply...

A: Growth Rate:In economics growth rate refers to the increase in the country’s Gross domestic product....

question_answer

Q: Links between trade and inequality

A: Trade: Trade is an economic activity which includes the buying and selling of goods and services. Un...

question_answer

Q: Choose the correct statement.   A. The PCEPI excluding food and energy fluctuates more than...

A: From the options that exist, the correct answer is A.

question_answer

Q: Transmission and Amplification Mechanisms- Ask FRED When a borrower fails to make a scheduled paymen...

A: a.Transmission and amplification mechanisms:From the given graph, the approximate delinquency rate i...

question_answer

Q: What would happen if we all decided that money has no value?

A: Money has a value, as it is issued by the government that is used around the world. People use the p...

question_answer

Q: 1. Suppose an increase in consumers' income causes a decrease in the demand for chicken and an incre...

A: 1.The demand for chicken:The demand for chicken is inferior good, because its demand decreases when ...