Often recession leads us to spend less, whether or not our jobs are impacted. Keynesian economists create policies that help stimulate aggregate demand to encourage us to spend more. The theory is that by encouraging spending, we will end up keeping more working and discourage layoffs.
The other school of thought encourages leaving the economy to work itself out and saving money instead of spending. Saving allows for increased investment in the future and this is essential to long-run growth.
When thinking of this, which do you think is the correct answer? Does spending or saving help our economy thrive? This is a subjective question and your thoughts are appreciated.
Use at least two of the following terms in your answer:
- Disposable Income
- Real GDP
- Sticky wages and prices
- Neoclassical perspective