To increase their taxes would be appropriate and this would be stream lining taxes at a time when the economy needs a boost. The Keynesian economists would look at government spending as a means for the government to stop the little growth the economy has had and is to have. The government spending would make it so the people would not have the money to spend within the states and they would have to go without needs and desires. This in turn would be the money that could be used within the economy.
Aggregate demand is defined as the total demand in the economy. The importance of managing aggregate demand in order to bring about a sustained reduction in unemployment depends on your economic view. There are two schools of thought who both have different views on how to reduce unemployment: Keynesian economists and Monetarist economists. Keynesian economists believe that increasing aggregate demand in order to stimulate higher output of goods and services, then leads to an increase in employment. In contrast, Supply side economists believe that unemployment is caused by the supply side of the economy not functioning properly.
Evaluating Fiscal Policy Alternatives Simulation ECO 372 November 28, 2011 Matthew Angner A government has a couple of roles the need to enforce in order to ensure that their people and land will be able to support them through any times. One of these roles is to invoke and sustain economic growth. The government can achieve this by trying to manipulate the trends in that particular economy, though fiscal policy. Fiscal policy is changes that are made to government spending or taxes that leads to one of two conclusions. One of these conclusions is that the economy will stimulate because of the changes being made, or the economy will slow down.
Consumer price and producer price in 2009 to 2012 continue to drop and raise the price for consumers was not steady. The direction and magnitude of price change in the Producer Price Index for finished goods anticipates a similar change in the Consumer Price Index for all items. When this assumed relationship is contradicted by the actual movements of the two series. The answer is that conceptual and definitional differences between the PPI and CPI—differences which are consistent with the uses of the two measures—contribute to the differences in their price movements. A primary use of the PPI is to deflate revenue streams in order to measure real growth in output.
The strong form of the Say's law stated that the "costs of output are always covered in the aggregate by the sale-proceeds resulting from demand". Keynes argues that this can only hold true if the individual savings exactly equal the aggregate investment. While Classical economics believes in the theory of the invisible hand, where any imperfections in the economy get corrected automatically, Keynesian economics refuses the idea. Keynesian economics does not believe that price adjustments are possible easily and so the self-correcting market mechanism based on flexible prices also obviously doesn't. The Keynesian economists actually explain the determinants of saving, consumption, investment, and production differently than the classical economists.
Proponents of the notion of a "political business cycle" suggest that: A. The standardized budget is a better indicator of the state of the economy than the actual budget B. Cyclical swings in the economy are produced by the inherent instability found in capitalist economies C. A possible cause of economic fluctuations is due to the use of fiscal policy for political purposes D. There is a tradeoff among goals that tends to make the economic policies of state and local governments procyclical 19. One of the timing problems with fiscal policy is an "operational lag" that occurs between the: A. Beginning of a recession and the time that it is recognized that the event is occurring B.
The bottom line for GDP is that it is a tool used to see how whether a particular economy is doing poorly or well. There are two types of GDP; Real GDP and Nominal GDP. Both still measure the value of goods and services, but the difference is that in Real GDP, the effects of price changes are excluded (Rittenberg, et al, 2009). Basically, Real GDP is adjusted to account for inflation. There are some limitations in using Real GDP.
If local prices in a country increase more than prices in another country for the same product; being is that foreign exchange forward markets are linked to interest markets; then the local currency may decline in value via its foreign counterpart, presuming there is no change with the structural relationship between the two. Balance of payments are affected when the balance of payments approach suggest that the exchange rates have come from capital transactions and trade. When the internal and external pressures are in equilibrium, this usually means the exchange rate for the equilibrium has been
Governments may choose to increase minimum wage on an arbitrary basis, making it difficult for companies to hire individuals at a consistent market rate. Government price controls distort the economic theory of supply and demand. Supply and demand is a significant underlying feature of free-market economies. This theory allows individuals and businesses to make decisions based on self-interest. Businesses often pay individuals a wage based on current market standards.
It can be argued that quality of people’s lives depends on more things than simply the material resources that are available. Another common problem with using GDP as a way to compare is the problem with exchange rates. GDP is calculated initially in terms of local currencies and then later it is converted into US dollar using official rates. The conversion into US dollar itself is a problem since the rates used are likely to be influenced by government intervention. This is especially true in developing economies where the currencies are normally pegged to another currency such as the US dollars.