Question

Present and discuss an illustrative example in a specific country of Neoclassical policy in Macroeconomics

Answer 1

Neoclassical policy in Macroeconomics suggest the action of the government policies undertaken to restore the level of unemployment and thus the increase in aggregate demand. In the year 2008, US economy faced a terrible phase of recession. There was a big downfall in the aggregate demand of luxurious goods like cars, hotels and recreational trips as many of the employees were being issued the pink slip and they lost their jobs. Forget about luxurious goods, they didnt have money to buy the necessity items and thus the aggregate demand falls drastically.

Due to the intervention of the government, the US economy restored its original state. Federal government reduced the repo rate and CRR and thus the loans were being made available at low rates of interest. As a result people were encouraged to take loans and to start the new entrepreneurial ventures. Thus the problem of unemployment got resolved as people got jobs in the new business ventures. As a result the living standards of the people improved and the aggregate demand also improves. Thus as a result of government efforts and the changes in fiscal policies, the economy restored its original state and finally returned to the state of recovery and the prosperity.