Question

Prior to the advent of Keynesian economic policy (using changes in government spending and tax rates to combat the ups and downs in the economic/business cycle) we had very little public debt - but had wide fluctuations in GDP, unemployment and inflation. The economy is more stable (shorter less frequent recessions, lower unemployment, less inflation) under Keynesian policies - but debt seems out of control. Is it worth it to build a large public debt in order to stabilize the economy? Who gets hurt by the growing debt? Who does Keynesian policy help the most?Prior to the advent of Keynesian economic policy (using changes in government spending and tax rates to combat the ups and downs in the economic/business cycle) we had very little public debt - but had wide fluctuations in GDP, unemployment and inflation. The economy is more stable (shorter less frequent recessions, lower unemployment, less inflation) under Keynesian policies - but debt seems out of control. Is it worth it to build a large public debt in order to stabilize the economy? Who gets hurt by the growing debt? Who does Keynesian policy help the most?

Answer 1

Keynesian economic policy aims to stabilize the economy by using government intervention, but it results in a growing public debt. There is a debate about whether the benefits of a stable economy outweigh the negative impacts of the debt. Keynesian policy aims to help those most affected by recessions.

Step-by-step explanation:

Keynesian economic policy, developed in the 1930s, advocates for government intervention in the economy to combat economic fluctuations. While this policy has led to a more stable economy with shorter recessions, lower unemployment, and less inflation, it has also resulted in a growing public debt. Whether it is worth it to build a large public debt to stabilize the economy is a matter of debate.

The growing public debt can have negative consequences, such as higher taxes, reduced government spending on other priorities, and potentially higher interest rates. However, proponents of Keynesian policy argue that the benefits of a stable economy, such as increased employment and reduced inflation, outweigh the negative impacts of the debt.

In terms of who is hurt by the growing debt, it can place a burden on future generations who will have to bear the cost of repaying it through higher taxes or reduced government services. Additionally, if the debt reaches unsustainable levels, it can negatively impact the overall economy.

Keynesian policy is designed to help stabilize the economy and reduce the negative impacts of economic downturns. It can benefit those who are most affected by recessions, such as the unemployed or those facing financial hardships. By stimulating aggregate demand through government spending, Keynesian policies aim to boost economic activity and create jobs.