Question

Please keep each answer to 400 words or fewer. Aim to be over 300 for each.

Footnote as necessary, I will grade primarily on relative mastery of the material and on critical thinking and analysis, but yes, quality of writing and grammar matter.

Make sure to think! The obvious is easy enough given that this is a take-home, so fire some brain neurons, please.

QUESTION:

What would MacKay or Keynes — pick only one, please — argue about the recent virus-induced shock to the economy? Ground your answers in the relevant excerpts by these authors?

Answer 1

For the analysis of the current situation, let us consider the Keynesian theory of economics. The Keynesian theory clearly deals with the output-demand equations and its erratic behaviour especially during situations like recessions or externalities. It states that at certain times, the aggregate demand of the economy does not necessarily be equal to the productive capacity of the economy. The concept was introduced during the great depression of 1930’s where he contrasted his approach to the aggregate supply-focused classical economics. The theory evidently argues that the aggregate demand of an economy is volatile and unstable and these can be mitigated only by effective monetary and fiscal policies.

                                    Now, let us analyse the theory in the wake of recent pandemic and the likely recession that is wavering over the world economy. The demand patterns across the globe is now following the pattern as suggested by Keynes during a recession. The demand is falling since most of the economies have shut down the so called unnecessary sectors. With especially many of the industrial units shut down, the production potential of the economy is being stalled. As suggested, many governments are spending freely so as to protect its people and he economic behaviour of the state. But the major question Keynes would be going to ask is ‘How badly would we pay for it?’. Keynes would have argued that the stimulus is happening at the wrong time of a business cycle as it should have come earlier. His concept of paying for a war economy would be referred to as stated, in a war economy, civilian expenditures would have to be cut short to boost the spending for war, similarly the taxation would be increased so as to boost the spending that id now required for medical aids.

                                    The Keynesian argument of a steep progressive taxation would come up as a remedial measure in many economies and the poor would have to be paid back once the economy stabilises. Since many of the labour force have withdrawn themselves so as to aid the public health, leaving the whole system to the free market would end in the collapse of the economy and hence Keynesian principle of government spending should be boosted.