A question about Keynesian Economics ? Keynesian Economics says to help get out of a recession a Government sh?
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A question about Keynesian Economics ? Keynesian Economics says to help get out of a recession a Government should lower interest rates and increase the money supply how does this help increase aggregate demand and consumer spending ? A REVIEW OF KEYNESIAN THEORY The cure for this, Keynes said, was for the central bank to expand the money supply. By putting more bills in people's hands, consumer confidence would return, people would spend, and the circular flow of money would be reestablished. Just that simple! Too simple, in fact, for the policy-makers of that time. http://www.huppi.com/kangaroo/Keynesianism.htm
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Answer:
It is a very simple truth that when people have more money than they need for survival, they buy consumer goods with that "disposable" income. When they buy consumer goods, they create a demand for those goods and that stimulates manufacturing to produce the goods consumers are buying. Expanded manufacturing means new jobs for workers and more people with disposable income, which keeps the demand for consumer goods growing.
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Other answers
The problem is actually getting the dollar into the hand of the consumer. Giving billions of dollars to GM or Chrysler, does NOT put spendable dollars in the wallets of consumers. Giving a half billion dollars to a company to make solar panels does not put the dollars into the pockets of consumers. THe goal is supposed to be to stimulate demand, not create demand for something that is not in demand. GM and Chrysler would not have gotten in to trouble if the had a product that consumers actually wanted. Solyndra would not have gone bankrupt if there had ever been a demand for solar panels in the United States. THere must already be a demand for something in order to stimulate that demand. The Government can not Create demand. And, the Government can not create jobs, so Americans should stop falling for that garbage coming out of the mouths of politicians.
That theory assumes the problem is available capital and the other economic factors - labor, resources, and technology - are in balance. Today a huge excess of labor, mostly in Asia, is undercutting wages and taking jobs and whole industries. Pumping in more dollars won't change that.
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