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Economy Foundation course 2 - Essay Example

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Economy Foundation course essay 2 Table of Contents Introduction 3 Keynesian economic policies and its effective implementation during the Golden Age 3 The end of the Golden Age 5 The rise of Monetarism and monetarist economic polices 7 Conclusion 9 References 10 Introduction Keynesian economic policies derive its name from the proposed ideas of the British economist John Maynard Keynes…
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Economy Foundation course essay 2
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Economy Foundation course 2

Download file to see previous pages... The increase in level of liquidity in the economy resulted in increased production of goods thereby leading to higher GDP growth rates. The end of golden age prompted policy makers to resort to monetarist economic policies. Keynesian economic policies and its effective implementation during the Golden Age According to Keynes’ economic theory, the expenditure of one person leads to an income of another person. The purchase of goods and services from one person leads to an expense of another person. This expense results in the earnings of the person that has sold the goods or services. According to Keynes, this is the underlying theory for circular exchange of money in the economy which leads to its smooth functioning (Hein and Stockhammer, 2011, p.59). Keynesian economic policies state that the aggregate demand in the economy could be boosted by raising government expenditures. The increase in government spending would encourage private investment. This is supported by a rise in investment savings (IS). Thus the IS curve would shift from IS1 to IS2 as shown below. The IS-LM curve shown below is interpreted as follows. Due to shift in the IS curve, the point of general equilibrium with the LM (liquidity preference and money supply) curve also shifts upward. This gives rise to rise in interest rates from i1 to i2 as shown in the graph. Also the liquidity level of the economy enhances due to rise in money supply from Y1 to Y2. After the great depression in 1929 and during the post world war period from 1945, the economy of UK experienced unprecedented growth. The economic prosperity in UK during this period of reconstruction and industrialization led to the emergence of golden age which prevailed from 1945b to 1970s (Rollings and Middleton, 2002, p.5). This could be attributed to the Keynesian economic policies. During the golden age, the policymakers banked on the underlying theories of Keynesian economics and increased government spending. The policymakers embraced government deficits and reduced government taxes in order to boost the income level and employment rates in the economy of UK. Thus the government spending was increased in order to boost the productivity and demand of the economy in UK (Tobin, 1989, p.27). The growth rate of GDP and per- capital income level increased rapidly. This was comparatively much higher with respect to the earlier phases of the economy. The income- level per person grew at the rate of 3.4% in the 1960s as compared to 2% in 1950s. The total productivity of labour increased doubly as compared to earlier stages in the economy. As compared to the last century, the GDP growth rates were also double. The trade volumes increased eight times as compared to the period before the World War. The growth of industries, total factor productivity, growth in the volume of trade and increase in capital stock led to booming conditions in the economy of UK (King, 2003, p.60). Thus the golden age during the period of 1945 to mid-1970s showed the effectiveness of Keynesian economic policies. The end of the Golden Age The golden age which existed in the developed countries like UK in the post world war period came to an end during the later stages of 1970. The decline of the golden age highlighted the flaws of ...Download file to see next pagesRead More
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