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Keynesian Economics Today

The use of Keynesian economics was introduced by John Maynard Keynes in order to fight the Great Depression.  Keynesian Economics uses monetary and fiscal policy in order to fight recession and inflation. Keynesian economics was a way to keep the economy at equilibrium by using two opposing policies.  Both policies encourage spending and circulation of wealth through the economy. Keynes proposed the problem was in the demand and not in the business confidence levels. Through Keynesian economics the solution would not be to cut government spending or to cut wages so that the businesses would hire more people. The solution was to increase government spending and infrastructure to create jobs and lowering taxes to encourage people to spend money.  The use of Keynesian economics could be used today for the problems we presently have in our economy, which is mentioned in an article for the New York Times written by Nancy Folbre.

Fiscal and monetary policy work opposite eachother to keep the economy in equilibrium by preventing recession and inflation. Fiscal Policy works through the government by increasing government spending and infrastructure and lowers taxes to encourage spending, which stimulates the economy.  One example would be the war that pulled the US economy out of the Great Depression. The more demand for jobs and the increase in salary would promote spending and increase money flow in the economy. Monetary Policy is often the preferred policy because of its benefits over Fiscal Policy. It is much faster to implement because, instead of working through the government, monetary policy works through the Federal Reserve buying bonds in order to lower interest rates. As the supply of money increases the interest rates go down in order to encourage people to borrow money that will then be circulated through the economy. The graph shows how monetary policy increases the supply of money which decreases the interest rates and encourages people to borrow money which is circulated through the economy.

              Economists predict the solutions to today’s recession are the same solutions proposed by Keynes during the Great Depression. According to the article written by Nancy Folbre in the New York Times, our society has fallen into debt because of a lack of demand for jobs. His solution to this problem would be jobs created by the government.

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