Suppose that Keynesian policies led to large increases in the deficit and federal debt. How should...

Suppose that Keynesian policies led to large increases in the deficit and federal debt. How should these be handled?

Expert Solution

The issue of large deficit and high federal debt is the result of non-productive development programs that have taken place in the name of a Keynesian way of resurrecting the economy. So, this issue should be resolved with initiatives as follows:

1. Reduce spending on this program that are non-productive in terms of job creation, demand and causing crowding out in the economy.

2. Selectively help industries that are ailing and let other industries grow on its own if they are in a healthy state.

3. Bring austerity measures in those spending programs that are meant for the government officials so that debt level is improved.

4. Tighten the tax collection system without increasing the taxes so that people and firms liable to pay taxes, should pay the tax without getting out due loop holes. The incentives should be given to the tax collection people who collect higher taxes.

5. Control upon the budgeted spending on social security benefits, other transfer payments in terms of freezing the limits and selectively issuing it for a particular time period, rather doing it for indefinite period.

6. Slowly increase the deductibles and coinsurance where the government is the single payer of health insurance. It will also reduce the burden.

Above initiatives if done efficiently, will give positive results in the pursuit of managing deficit and debt level.

Rahul Sunny answered 2 years ago

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