MajorDebatesOverMacroeconomicPolicy

MajorDebatesOverMacroeconomicPolicy - Major Debates Over...

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Major Debates Over Macroeconomic Policy 1 Sarah Bellin Major Debates Over Macroeconomic Policy Professor Neal Johnson June 5th, 2017
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Major Debates Over Macroeconomic Policy 2 Introduction Advocates and critics each have their individual opinions on whether increased government spending will help with an economic crisis. These advocates and critics also have an opinion on how the government should follow a balanced budget. Over the last few decades the United States economy has had some severe recessions, the biggest being the 1930’s Great Depression. With these recessions economists have had to think of new ways to prevent future recessions. Some new ways economists have thought of to help the economy grow include an increase in government spending, and having a balanced budget for the government. Increased Government spending to fight Recessions The government spends money in order to stimulate economic growth. According to Mankiw, N. G. (pg. 521), “If the government tried to balance its budget during a recession, it would have to raise taxes or cut spending at a time of high unemployment.” When the 1930’s Great Depression occurred economists learned a lot about problem solving during a recession. During the Great Depression, “Real GDP fell by 27 percent from 1929 to 1933, and unemployment rose from 3 percent to 25 percent. At the same time, the price level fell by 22 percent over these 4 years.” Mankiw, N. G. (pg. 444). The biggest problem with the 1930’s recession was the insufficiency of aggregate demand. The decline in aggregate demand meant there weren’t enough goods and services being sold. Like a domino effect hitting the economy; employment rates began to drop rapidly as there was no work. Economists had to think quickly on how to fix this economic crisis, and get the United States out of the turmoil. Finally
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