Question

Respond to the following prompt in a post with a minimum of 250 words, then comment on at least TWO other posts. Feel free to bring in additional references to you posts and/or comments.

• Since the outbreak of COVID-19 the US is going through one of the biggest recession of all time. How would Keynesian economists explain the current economic recession? Feel free to use graphs, news report to explain your reasoning.
• How would Neoclassical economists explain the the current economic recession? Feel free to use graphs, news report to explain your reasoning.
• Which interpretation makes the most sense to you? Why?

Answer 1

Current pandemic has impacted many world economies and key impacts of the COVID-19 pandemic on the global economy are that many economies have suffered huge loss in the GDP , no country is spared and most of the global economies are forecasting significant reduction in world output

Because of current pandemic and due to the lockdown in many countries , many global economies are facing twin shocks of Demand Shock and Supply Shock. Challenges Central banks are facing that impact of the large deficit will be that the Government’s deficit will increase further , and there will be crowding out effect. The rating of the Government may deteriorate and economy can get into recession.

In such scenario, Keynes argued that when crises occur, the government should intervene to keep capital and labor employed by deliberately running a larger fiscal deficit. This intervention would limit the damages of major recessions.

Keynes believed there could be circumstances in which lower interest rates would not reignite growth because of lack of business confidence. Therefore he suggest that advocated government intervention in the form of fiscal policy.

Neoclassical economists argue that what is produced will be sold because supply creates its own demand. If something is produced, the capital and labor used for that production will have to be compensated. This compensation of the factors ,interest for capital and wages for labor, creates purchasing power in the sense that the workers receive a paycheck and thus can buy goods and services they need. Widespread declines in demand would be strictly temporary.

We agree with the Keynes theory in the present situation and at present based on the Keynes policy government has given lot of fiscal stimulus by giving cash subsidy and many other allowances.