1. What is Keynesian economics? Explain how policymakers used Keynesian economic

Question

1. What is Keynesian economics? Explain how policymakers used Keynesian economics in response to the Great Recession. Be sure to include discussion about the types of fiscal and monetary policies that were used.

2. What is a long-run consequence of running persistent budget deficits? Why is it a problem? Provide reasons from the textbook or reasons discussed in the (2008) movie, I.O.U.S.A.

3. If conventional monetary policy can no longer lower interest rates, what option(s) does the central bank have to stimulate the economy? Provide an example of the Fed

Explanation / Answer

1. What is Keynesian economics? Explain how policymakers used Keynesian economics in response to the Great Recession. Be sure to include discussion about the types of fiscal and monetary policies that were used.

Keynesian economics is the view that in theshort run, especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy).

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1. If saving exceeds investment we get a recession

Classical theory suggested any fall in investment would led to lower interest rates; this fall in interest rates would reduce saving, increase investment and cause the economy to return to a new equilibrium of full employment. However, Keynes

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