Question

Write a 200 word posting in which you discuss if the Keynsian theory in economic thought is still relevant today.

Answer 1

Keynesian policy, proposes strong government intervention in the economy to make it achieve potential output level, as economy cannot do it on its own. The reason given by the Keynesian approach is sticky wages, changes in savings with the change in economic conditions and aggregate demand, making a strong impact to create aggregate supply. It can be observed when a fixed annual contract is given to the workers. Here, the nominal wage is fixed for the workers. Further, people change their consumption pattern with the change in economic prospects. A poor economic condition, leads people to save more and spend less, causing AD to shift to the left. These proposed perspectives are still relevant today and being applied. It can be understood by the policy prescription used to counter the recession after the 2008 financial crisis. Government intervened with the package of more than $787 Billion, meant for the different sectors in the economy and it was well complemented by the expansionary monetary policy, by the Fed. It helped economy to slowly recover and started growing again. It proved that Keynesian policy works and it is justified by its impact in the US economy. Hence, Keynesian policy is still relevant in economic thought.