Question

1. We came out of the 2001 recession some time back (quite some time back) What kind of policies were adopted to help get us out of that recession? Do these sound like Keynesian polices or Classical ones? Why? How would the policies by the other school of thought look different? What about the policies adopted to get us out of the 2008 recession? What kind of policies were those? The response to this question is due by Thursday, July 30th.

Answer 1

Like the recession of 2001, the economy of USA faced the another severe recession, it is also called the great recession.

The aggregate demand was deficient during this period, thus Keynesian prescription was used to counter such kind of severe recession. Government increases expenditure during the great recession, it led to rise in the aggregate demand in the economy. It recovered the output and employment .

The classical economist do not favour such kind of prescription. They favor that government should not go for the rise in the expenditure level. The flexible wage and price would restore the equilibrium in the economy. But the classical theory doesn't seem to be more practical in the short run. Classical theory might hold true over the long run.