Term Paper on "Economy Has Been Impacted"

Term Paper 4 pages (1156 words) Sources: 4

[EXCERPT] . . . .

economy has been impacted by a number of factors which are increasing the overall amounts of volatility. To fully understand why certain polices have been perused requires examining the decisions that were made and the effects they are having on everyone. This will be accomplished by looking at the Keynesian economic philosophy, the role of consumer confidence and how it impacts aggregate demand. Together, these elements will highlight the underlying strengths and weakness.

The chapter that was examined is illustrating the challenges that can impact the economy during recessions. The Keynesian theory is providing governments with the ability to deal with these issues and reduce the negative effects of these events on everyone. This is because it understands the primary drivers of growth most notably: consumption, investment, government spending and net exports. These different areas will have an impact on aggregate demand and ensure that consumers continue to spend money. This will have a positive or negative influence on the unemployment rate (depending upon the underlying amounts of economic activity which is occurring). (Schiller, 2010)

According to Keynes, during times of severe economic distress, these variables will determine if a recession occurs and the length of it. This is based upon events which happened during the Great Depression. In this case, consumer demand declined dramatically in 1929 and continued well into the 1930s. One of the ways that helped to restore full unemployment and economic growth was through the industrialization of different economies from World War II. This provided them with added levels of aggregate demand (based upon the large amounts of government spending). (Schiller, 2010)

These experiences helped Keynes to realize that government can provide added levels of stimulus during times of economic distress. It will help to encourage consumer spending and have positive effects on businesses. They will begin hiring new workers and economic growth will resume back to normal levels. (Schiller, 2010)

To achieve these objectives others tools can be utilized in the process to spur demand. The most notable is to reduce taxes in order to encourage increased amounts of spending. This has been utilized during the 1960s, 1980s, the early 2000s and in the recent recession (from 2008 to 2009) in order to stimulate economic growth. The results are that this helps to encourage economic activity. (Schiller, 2010)

However, it will also lead to an increase in the national debt with the government utilizing deficit spending to achieve these objectives. Keynes believes that this is something which is acceptable. This is because he feels that these levels will decline through an increase in the total amounts of taxes received from more people contributing to economic growth. (Schiller, 2010)

These insights matter to me personally, by describing how different events occur and the way to reduce the negative consequences associated with them. This is because recessions are the direct result of a decrease in consumer spending. These reductions will have ripple effects on economic activity and the way it impacts hiring / business decisions over the long-term. (Schiller, 2010)

When this is utilized in conjunction with a tax cut, it will have a dramatic impact on the economy by encouraging to consumers to spend more money. This is the result of them having these funds available, which leads to them utilizing them in the economy. In some cases, this occurs with them spending the money on basic necessities. While at other times, they will use it to purchase large big ticket items… READ MORE

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