How Keynes' Economy Is Applied in Brazil - Research Paper Example

How Keynes economy is applied in Brazil? According to Keynesian economics, the markets do not necessarily create equilibrium in employment, but the market can still manage to stay at equilibrium at ay level of the process. In such a case, the principle of failing to intervene in the market would not be workable. According to his principle, the economy must always have some other forces prodding it for it to go the right direction (Werner 2001 p 11). Keynes believe din the circular flow of income and this seems to be the economic principle being employed in Brazil.

This happens in a liberalized economy lie the Brazilian one whereby there is minimum interference from the government of any other bodies. In a situation whereby the market has been influenced by any other factor which affects the equilibrium, it will adjust itself to turn back to equilibrium. This can best be explained by the forces of demand and supply which adjust themselves to create equilibrium. In a situation whereby the government decides to inject in the economy, through increased spending, there would be increased demand among the factories to produce the goods and services requited by the government.

A situation would be whereby the government decides to strictly use home grown products devoid of any imports. Such a demand for the products means that the factories will have to employ many people who will consequently be taxed. Aggregate demand among the Brazilian population also increases and all the leakages (imports, taxes and savings. However argued that overreliance on markets for employment was not the best idea to manage equilibrium and that the market should be let alone to regulate itself.

He believed in the principles of: 1. The labor market 2. The market for loanable funds 3. The multiplier and, 4. The Keynesian inflation theory. How imports and exports influence the economy in Brazil? The Brazilian government has implemented a policy whereby it was able to overcome the global economic crisis which hit many economies in the world. In 2007, Brazil had a growth rate of 5.7% even though the government has embarked on strengthening the economy trough injecting more capital (David 2009 p 17).

It also introduced tax reductions to the domestic manufacturers as well as reducing the interest rates which are charged by the central bank of Brazil. There have been sustained increases in exports and maintenance of inflation rates which have consequently decreased unemployment rates as well as reduction of external debts which have crippled many economies of developing countries. Brazil has adopted very liberal economic policies whereby it encourages foreign investment whereby the US is a leading foreign investor in the Brazilian economy.

It has sustained its good policies for encouragement of foreign direct investment. Though this investment, it has been able to manage the amount of imports which are being bought by the government. Economic growth and poverty alleviation are top priorities for the government of Brazil and through increased exports; the economy is able to sustain its population. Brazil has actively participated in the WTO talks whereby it advocates for fair trade practices which often put such countries to a disadvantage while competing in the global market.

Such talks mainly revolve around unfair agricultural subsidies offered by developed countries; and the Brazilian economy is heavily reliant on agricultural exports for economic growth. It is the world’s leading exporter of sugarcane, tropical fruits, coffee, and concentrated orange juice, and it must do anything to safeguard this market. Brazil is also leading exporter of cattle products; even surpassing the US. It is also a major exporter of soy beans, pork, milk, tobacco among many other agricultural products (David 2009 p 25).

What is more important: aggregate supply or aggregate demand in Brazil? The aggregate supply is a concept which is used to measure the amount in terms of volume of the goods and services which the market is willing to supply within the given price at the time. It therefore means that the relationship between the aggregate supply and the goods supplied which is also affected by the process of the goods and the services (Horst 2007 p 17) Increased prices are an indication that there is a need to expand the production to meet the supply.

The aggregate demand on the other hand is the amount of goods and service which are demanded within a given period of time at a particular price. It therefore means that the economy will be able to purchase a given amount of goods at that price at that time. In the Brazilian context, the aggregate supply will be more important given the fact that it has embarked on an export promotion strategy. This has meant that more emphasis is laid on the given prices in the global markets which dictate the amount of exports to be produced.

This is based on the fact that exports form a very important role in the Brazilian economy. Explain Marginal Propensity to Consume in Brazil? The marginal propensity to consume is a measure for the increase in consumption which happens after people have got increased disposable income. This income is the one derived from reduction of all expenses and taxes. It is measured against the net income of an individual. It is the ratio that occurs in consumption change which is as a result of change in income levels of the population.

At times, it can be misleading when the money being spent is borrowed and does not reflect the actual earnings of the given group. The Brazilian propensity to consume is therefore within the margins of 0 to 1 whereby much of the spending is from individual increased earnings from the increased economic activity in the country. With the growth incentives which are offered by the government, people have experienced increased income which has translated to consumption. Federal Reserves in Brazil The federal reserves in Brazil are in the Brazilian central bank (Banco Central do Brasil) which is the highest economy of Brazil.

This reserve was established in Dec 31st 1964. It is linked to the finance ministry and it is responsible for controlling all the monetary policies in Brazil (Marcelo 2004 p 41). This Federal Reserve has been mandated by three institutions namely the National Treasury, Bank of Brasil and the bureau of currency and credit Bibliography 1. David, G. The World Economy: Global Trade Policy, John Wiley and Sons, 2009 2. Horst, S. The world economy: a global analysis, Routledge, 2007 3. Marcelo, A. The political economy of high protection in Brazil before 1987,BID-INTAL, 2004 4.

Werner, B. The Brazilian economy: growth and development, Greenwood Publishing Group, 2001