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Economic (Keynesian Economics) - Assignment Example

The government, following the Keynesian economics does not wait for the market forces to act in order to settle the adversities within an economy in terms of enhancing GDP (Gross Domestic Product) and reducing unemployment. Instead, the government backs up the economic condition through the utilization of its capacity of making changes in the rates of interests and transaction of bonds issued by it within the market, i.e. through buying them back or through selling. Following this economics, the government aims to act as an interventionist (Pressman, 2001). At this point, the question arises as to how the government utilizes its weapons of controlling money supply for improving economic performance. With regard to this, the government has three factors for manipulating in order to reform the economy: aggregate demand, savings and unemployment. Aggregate demand is that economic factor which is often considered as the GDP. Investment, consumption, net exports and government spending are the variables of this aggregate demand. If any of these components decrease, the government increases any other component for keeping the GDP same. Government can decrease the rate of interests for de-motivating the savings perspectives of the individuals and thus can save the GDP to fall considerably due to excessive saving within the economy. Government can induce demand for goods and services for motivating the business houses to build up new factories or can itself spend more on building up capacities

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of production. These will result in multiplication of the spending of government as a result of more employment within the business houses. For example, during the 2008 global financial crisis, the US government enhanced its spending through acquiring high amount of equity in the American International Group with the aim of inducing prospect for investing among the individuals in a financial institution which is majorly owned by the government (Amon, 2010). Answer to Question Two Capitalism is that form of the economy where most of the possessions are owed by the private sectors. Practically, there cannot be any perfect existence of capitalism as this is inclusive of certain forms of intervention from the government for protecting the property which are privately owned and at the same time make certain regulations within the economy. Principally, there are three important advantages of capitalism. The first one is the efficient resource allocation along with production efficiencies. Capitalism, often termed as the “invisible hand of the market”, makes certain that the resources of a country are proportionately distributed within the market according to the level of preferences of the consumers. In terms of productivity, capitalism aspects of the economy direct the firms to cut costs for enhancing level of competition and also productivity for sustaining in the competitive market. The second advantage of capitalism is that it creates dynamism within the market. This happens because the firms, under this system are required to counter aggressively to changing preferences of the consumers for adhering to their trends. Thus, capitalism enhances market dynamism. The third and perhaps the most important advantage of capitalism is the inclusion of financial incentives that induces the feeling of developing businesses among the entrepreneurs. Capitalism provides scope of
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According to perceptions in the Keynesian economics, the state or the government is an important part of an economy through which optimistic activities can enhance any adverse situation within an economy…
Economic Assignment (Keynesian Economics)
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