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Q: using expansionary policies to combat a recession would?
A: Both expansionary monetary policy and expansionary fiscal policy are being used to counter the recession. Expansionary monetary policy is basically just lending more money to people, [ people borrow that money and spend it creating demand in the process. The United States has been using expansionary monetary policy for about 20 years straight now which has directly lead to massive increases in
the levels of debt in the economy. Debt levels are so high now that no one can actually borrow any more so monetary policy has stopped working. Monetary policy is at the most expansionary setting possible right now and it is having effectively no expansionary impact on the economy as a consequence of excessive debt levels. Fiscal policy thus is the only option left available to actually rectify the situation, basically all you are doing is spending money through the government thus creating demand in the economy. Measures being taken include tax cuts (which I personally disagree with under the circumstances as a greater demand impact could be achieved by spending elsewhere like unemployment benefits without the cost of reducing revenue, increased unemployment benefits actually increases govt revenue), other measures being taken include infrastructure spending and extending the length of unemployment benefits. This is basically a Keynesian approach. Keynesian economics revolves around the concept of 'aggregate demand' the government can increase the amount of aggregate demand through government spending. A Keynesian approach is fundamentally the right way to go under the circumstances that exist as this crisis is basically a crisis of demand. ]
Expert answered|badeeani|Points 10|
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Asked 9/6/2013 6:14:13 PM
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