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时间:2016-12-08 17:32来源:www.ukassignment.org 作者:cinq 点击:
During the era of the stock market crash and the Great depression of the 1930s and 40s, people began to wonder what the government's role in the economy really was. History showed government as being very passive when it came to bailing out the economy when it was in a recession.
This thinking was a primary lead to the great depression of the 20s and 30s. The classical way of thinking in which the government operated, when it came to the economy, was in direct relationship to the business cycles. Government let the economy regulate itself believing that, when the economy went into recession that it would correct itself. This was the case, but the recovery time when the government allowed the business cycles to correct themselves hurt the economy more than it helped the economy.
When the government allowed the cycles to correct themselves, it took longer than expected for the trend to take hold and recessions usually lasted long periods of time. This was the primary reason that the great depression lasted until the Second World War instead of an economic recovery happening in the early - mid 1930s.
John Maynard Keynes introduced a new way of thinking when it came to regulating the economy. Keynes introduced Keynesian economics, which is an economic theory of spending in the economy, which is related to aggregate demand, and its effect on output and inflation. Keynesian economist, attempt to justify the need for the government's intervention in the economy through public policies that aim to achieve full employment and price stability.
This school of thought suggest that the free market has a very slow self regulating, balancing mechanism that can control employment, output and demand. According to Keynes there are two causes of crisis. One cause is the collapse of marginal efficiency of capital. The other cause is deficiency of effective demand, which in essence means that the capacity for people to consume is decreasing.
Throughout this paper we are going to look at Keynesian economics and three of six principal themes that explain the school of thought. Also, we will look at its relationship to Fiscal Policy, with a focus on taxing, and the effect of Keynesianism on the current economic crisis.
Keynesian economics is a theory states, government should actively regulate the economy in face of a recession or economic downturn. There are six principals that Keynesian economist live by, but I will talk about the main three that describe how the economy works through Keynesian eyes.
The first fundamental principal of Keynesianism is aggregate demand. A Keynesian economist believes that aggregate demand is influenced by different public and private economic decisions, which causes it to behave unpredictably. This is in essence saying that demand is subject to many different factors like, tax policy, amount of money a person has, employment, the value of the dollar, or the level of inflation.
This is why Keynesian economics focuses on stimulating employment. The second principal focuses on aggregate demand and its effect on the short-run, real output, and employment. This idea is shown through the Phillips curve, which represents the relationship between inflation and unemployment.
This curve found a consistent inverse relationship where when unemployment was high wages rose slowly, and when unemployment was low, wages rose quickly. With government pumping money into the economy through Keynesian thought, it would create more jobs for people, resulting in higher wages and more disposable income for people to work with.
They will, in theory, consume and invest more, which the before hand factor of more disposable income has driven up demand. Keynes didn't believe in the long-run, he always used the quote "In the Long-run were all dead" (Blinder) he used this to help economist understand that it would be beneficial for the government to pump up the economy with spending now to help the economy repair itself with out going into deep recession.
Keynesians believed that out-put was directly related to government spending. They stated that, "Because prices are rigid, fluctuation in any component of spending - consumption, investment, or government expenditures - cause out-put to fluctuate." The equation for this is Y = C + I + G + NX where Y is output, or national income, C is consumption, I is investment, G is government spending, and NX is net exports.
If government spending increases and all other spending remains constant then out-put will increase, in simple terms saying that when government spending increased aggregate demand is going to increase. This is in conjunction with the multiplier effect which is saying that output will increase by a multiple of the change in spending.
The third principal is that Keynesians believe that prices, with an emphasis on wage, respond slowly to changes in supply and demand resulting in temporary shortages and surpluses of labor. This is to say that in order for the price and supply to catch, wage and demand, which I think are directly related, the government must interfere with the economy.
This aggregate demand and supply curve shows, what the Keynesian economic theory is suppose to accomplish, which is for the government to stimulate the economy through fiscal policy in order to increase aggregate demand for people to consume.
To shift gears to current terms, the focus will shift to Keynesian economics and fiscal policy with an emphasis on taxing. Fiscal policy involves government spending and taxing. The fiscal stimulus is a standard Keynesian reaction to an economic recession. Keynesians believe that either tax cuts or increased government spending will increase the demand for goods reversing the effect of a recession.
Unlike government spending, tax cuts will give people more readily available disposable income to bring home. This in turn will increase demand; increases output and create jobs and higher wages for people.
Looking at the current economic crisis, tax cuts and increased government spending have been a major part of what the president, past and current, have been trying to do in order to stimulate the economy.
Republicans support for an economic-stimulus package was a classical Keynesian way of thinking. The tax cuts prodded companies to increase wages and to create jobs. The proposal of $300 billion in tax cuts has the possibility of having a greater impact than President George W. Bush thought.
The tax cut proposal will be geared toward income tax payers or people who claim the earned-income credit. However, after receiving these checks consumers saved the money or paid off debts so it was not a true success, because the main ideal behind the tax cuts is to increase demand. President Obama aides have engineer ways in order to get cash in the people's hand fast hoping they will spend it.
As much as it may seem to look good for the individuals and families, this tax package also benefits businesses. This package will allow businesses to write off anything that cost them greatly in the past year. This will also make this tax write accessible for the current tax season. This will make it easier for companies to put money back into the business and make more investments. Even thought the current limit for write off's for small business is 175,000, Obama's new package will allow expenditures worth up to $250,000 this year.
Taxes play a very important role. These new tax cuts will open door for many people to again consume and for businesses to create jobs and invest. So when the unemployment goes down then our economy will be at a good stand point. And example of Keynesians economics and how it could work is, Elkhart, Indiana, where the unemployment rate is 15.3% whereas it was only 4.7% last year.
President Obama's proposed tax cuts may possibly affect this town in a positive manner, because by pumping funds into this economy it will help struggling factories through savings and get the people back to work.
In order for Keynesian economics to work great emphasis should be placed on fiscal policy and how it is used. This is especially true when it comes to taxing, because I believe that in order for the people to be able to consume or even have a demand, they must have the funds to do so.

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