1. After the dissolution of the Soviet Union in 1991, the Russian Federation had a lot...

1. After the dissolution of the Soviet Union in 1991, the Russian Federation had a lot of issues building a strong capitalistic economy. During the period of privatization, a lot of people were unemployed and had no clue how a free market economy works. All this factor resulted in the formation of bandit groups and gangs and a huge unemployment rate in the whole country. Based on the theories created by John Maynard Keynes, how should the government of the Russian Federation create demand and help people finding jobs?

2. Imagine that Canada is in the New Great Depression following the current global pandemic. The unemployment rate is very high, and many people have no source of income. How should the government respond to this downturn according to Keynes theories? Should the Government be concerned with balancing their own budget, why or why not?

3. Explain how cyclical unemployment is related to the theory of insufficiency of effective demand.

4. The theory of diminishing marginal propensity to consume suggests that rich people spend a smaller amount of the income on consumption (demand) than poor people do. Why would this make income inequality even worse for an economy than if this were not true?

try to use your own words to answer

Expert Solution

1.

Using the theories given by Keynes, the Russian federation should increase government spending and involve in building infrastructure projects as a part of expansionary monetary policy. It will create jobs for the people as well as AD will also increase in the economy. It will make firms to do some investment and increase supply to cater the AD. In this process, more new jobs will be created. It will increase purchasing power and more AD will be created as people will start spending money, because they now earn it. So, a chain of positive economic activities will be initiated, that will create more jobs, (decreasing unemployment), increasing investments (building capacity in the economy) and increase in income of the people to create more demand in the economy. So, real GDP will increase and economy will slowly come out of the trouble and regain the development process. The approach can also be of reduction in tax, so that people have more income to spend. But, increase in spending will be more effective.

Pl. repost other unanswered questions for their proper answers!

Rahul Sunny answered 3 weeks ago

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