I would favor monetary economic maneuvering of the economy because while in the short term it may be undesirable, however, in the long haul it does not rely on higher taxes and interest rates paid by people for the economy’s recovery, but maintains its fixed rate of deductions for people. The government instead of pumping large sums of money hoping it helps the economy should follow fixed rates, along with its control of the money supply, to tune things out instead of going up and down based on the economy’s performance.
The depression period is needed to return the econ... ... middle of paper ... ...sion will only cause greater harm. This can be seen in the period leading up to the Great Depression. The roaring 20’s seemed to be a time of unlimited prosperity due to Federal Reserve measures which continuously gave money to banks. Instead of realizing the problem, the Fed continued to loan out money until the market ultimately crashed. During the depression period, Hoover (as well as his successors) tried to fix the economy by putting more money into it.
Hayek explained that when you simply pump money into an economy, inflation occurs and capital decreases in value. Now, that's an idea you don't need t o take an economics class to be able to wrap your head around. Stimulating the economy through direct relief does not seem like and effective escape from a recession or a depression because the money the citizens receive goes to the national deficit and will have to eventually be paid back (with interest). Works Cited EconStories. "'Fear the Boom and Bust' a Hayek vs. Keynes Rap Anthem."
Therefore he attempted to prove the orthodox theory of Says Law wrong and identify the connections between the gold standard the level of employment in Britain, by writing Treatise on money (1930)'. However, yet again Keynes was not as successful as he hoped he would be. Treatise' had many flaws, and stimulated a lot of criticism, as he yet again did not fully explain his theories. Nevertheless, this book did convey the some of the basics of his new theory... ... middle of paper ... ... As for the rate of interest, it depends on the desire to cash and the quantity of money available' (Fusfeld, 2002, p.135). The basic theory of General Theory' was opposite to the old theory that the interest rate formed equality amongst savings and investment and that decrease in wages lead to full employment.
There are many people are against the high deficits especially economists. “Economists define government intervention in the foreign exchange market as the buying or selling of foreign exchange for the purpose of manipulating the exchange rate. “(Case, pg. 398) Economists would agree that there are situations which lower levels of government spending would improve economic growth and other situations in which higher levels of government spending would be pleasing. Economists will generally agree that government spending becomes a burden.
Currency Wars: The Making Of The Next Global Crisis describes the various different currency wars that have been carried out by nations in an attempt to obtain certain economic advantages. The book describes a currency war as a tactic used by different nations in an attempt to boost their own economy. In order for this to happen, the country must first devalue its own currency which will lead to a lower exchange rate for the home nation’s currency on the global market. After this step has been achieved, domestic exports become cheaper while at the same time foreign imports become more expensive. Because of this, domestic industries tend to do much better; leading to even more employment opportunities, higher salaries, etc., which will help to stimulate the domestic economy.
"The failure of national economic policy is costing us more than jobs; It has begun to weaken that uniquely American spirit of risk-taking, large ambition, and optimism about the future. We must rally them now to bold departures that rebuild our national morale as well as our material prosperity." - Mitch Daniels "Education is the best economic policy there is." - Tony Blair Many influential politicians and economists believe that economic policy directly affects the work force. That "bad" economic policy directly affects human capital.
This inflation would result in an increase on the price of commodities. This recession should not be as bad as the recession of the 1920’s knows a, The Great Depression. Many problems are occurring because of the recession, unemployment rates are at their highest, inflation is on the rise, and the deficit needs to be reduced by fix international trade and finance within our government and industries. Due to the various economic turmoil’s of the past and present, the American government and its people need to implement new ways in which they can preserve money in these harsh economic times. America needs to stop being frivolous with its money because spending is not going to help it get out this huge deficit that it has put itself in.
I can see the Federal Reserves reasoning behind raising interest rates to slow down the economy and lower inflation, but they need to realize that the rate of inflation is not completely dependant upon the rise and fall of the economies well-being. The past has proven to us numerous times that the economy is quite capable of being stable and prosperous without effecting the inflation rate in a negative way. That’s why I feel that it would be in the nations best interest to continue letting the economy expand into bigger and better things without raising interest rates to unneeded proportions. WORKS CITED Forbes, Steve. “Bad Idea Begets Bad Economy.” Forbes.
A well-known example of this is the actions taken to solve the problem of the Great Depression, where Governments used a “stimulus package” to increase Aggregate Demand and increase the flow of economy, so it wouldn’t be stuck in a recession. Keynes believed that wages were “sticky”, resistant to change, which is why AD must shift, because employment won’t change over time. Frederick August Hayek was one of the more important figures of the school of Austrian Economics, a school of tho... ... middle of paper ... ... support economic growth, where “x” is between 3 and 5. Although I agree with Hayek, in that over time the market should correct itself due to Aggregate Supply shift, I don’t feel his solution to the problem is the best. A benefit of the Keynesian solution is that it does in fact counter short term problems in a more controlled sense; it doesn’t leave the economy to nature.