Week 4 Discussion Responses - Econ

Week 4 Discussion Responses – Econ

Discussion Response 1

By P,V

The Keynesian model involves many theories in which work, during recessions where economic output is influenced by total spending in the economy.  Japan has been using Keynesian principles since 1989.  During their crisis, they began deficit spending in large doses.  They held up failed business models and in 2000 began printing exuberant amount of money.  As two decades passed with a failing economy, they continued with a 'if only' mentality.  In 2012, the prime minister deployed strategies from the central bank credit creation, currency destruction and debt accumulation (Pento, 2014).  The Japanese felt that the Keynesian model worked because they firmly believed that growth comes from inflation. 

The result of using the Keynesian model was drive the national debt up to 200% of GDP.  There are bullet train stations in almost every area of the country, which should have grown the economy up but that is not the case.  Japan has now adapted abenomics which is a series of unconventional monetary policies.  Although the Keynesian model did not work for Japan, they are hopeful that abenomics will.  It is still too early to say.  If Japan had taken on a more classical approach, they may have been able to improve their economy quicker than they have.  Allowing for a more self adjusting theory may have prevented Japan from such a large increase in the nation's debt and have GDP restabilize.

References

Pento, M. (2014).  Japan has fallen victim to the Keynesian scam.  Central Banks.  retrieved Wednesday, July 19, 2007 from http://www.cnbc.com/2014/08/21/.

Discussion Response 2

By S,N

According to classical economists, a recession or inflation in our economy would be self-adjusted realigning prices and employment. Keynes suggested the opposite and there would be no self-adjustment and would remain in unemployment or inflation. Keynesan’s believe when a downturn in an economy happens “the usual dynamic of supply and demand breaks down, people don’t spend enough money, and there’s no way for the economy to automatically adjust. So, Keynesian prescription theorizes, that if all else fails, the government should spend the money. Looking at Reagan’s presidency, he “promised the "Reagan Revolution." It's focused on reducing government spending, taxes and regulation. His philosophy was "Government is not the solution to our problem, government is the problem." (Amadeo, 2017)

To combat recession, Reagan aggressively cut income taxes from 70 percent to 28 percent for the top income tax bracket. He cut the corporate tax rate from 48 percent to 34 percent. He also promised to reduce government spending and regulations. During Reagan’s first year, he cut domestic programs by $39 billion, and increased defense spending to achieve "peace through strength" in his opposition to Communism and the Soviet Union to help end the Cold War. To combat inflation, Federal Reserve raised the fed funds rate to 20 percent that successfully ended the inflation. At this same time the unemployment rate remained at around 10 percent.

If Reagan would have taken a more classical hands-off approach, the double digit inflation would have continued to trend upwards. Reagan especially needed to cut taxes as they extremely high in the early 1980s.

References

Amadeo, K. (May 2017). President Ronald Reagans Economic Policies. US Economy. Retreived             from https://www.thebalance.com/president-ronald-reagan-s-economic-policies-3305568

Galupo, S. (Nov, 2011) Ronald Reagan Practiced Keynesian Economics Successfully. US News. Retreived from https://www.usnews.com/opinion/blogs/scott-galupo/2011/11/01/ronald-reagan-practiced-keynesian-economics-successfully

Schiller, B & Hill, C. (2013). The Macro Economy Today (13th ed.).  New York, New York:         McGraw-Hill Companies, Inc.