During Great Depression of the 1930s and the Great Recession of 2008, Keynesian economic policies implemented during Presidents FDR and Obama terms advocated for
Group of answer choices
a. increasing budget deficits but also increase inflation to lower the real value of the national debt.
b. increasing government spending to stimulate economic growth and to create and maintain jobs.
c. increasing the money supply by authorizing the Federal Reserve to raise interest rates.
d. raising interest rates to fund unemployment insurance claims.
e. printing more currency rather than increasing the national debt.
The correct answer and explanation is:
The correct answer is b. increasing government spending to stimulate economic growth and to create and maintain jobs.
Keynesian economic theory, named after the British economist John Maynard Keynes, advocates for increased government intervention during periods of economic downturns. Both the Great Depression and the Great Recession were marked by severe economic contractions, high unemployment, and a collapse of consumer and business confidence.
During the Great Depression, President Franklin D. Roosevelt (FDR) adopted Keynesian policies through his New Deal programs. Keynesian economics emphasized the importance of government spending to compensate for the drop in private sector demand. FDR’s administration increased public sector investments in infrastructure projects, such as roads, bridges, and public buildings, which helped provide jobs and stimulate economic activity. The idea was that government spending would kick-start economic recovery by increasing demand, reducing unemployment, and boosting consumer confidence.
Similarly, during the 2008 financial crisis, President Barack Obama also applied Keynesian principles. His administration passed the American Recovery and Reinvestment Act (ARRA) of 2009, which focused on increasing government spending in sectors like education, healthcare, and infrastructure. This aimed to stimulate economic growth and reduce the high levels of unemployment caused by the recession. The strategy was to counteract the decline in private spending and investment, which had sharply fallen during the recession, by increasing public sector expenditure.
In both cases, the goal was not to reduce deficits immediately but to focus on short-term recovery by stimulating demand, supporting employment, and fostering an environment for long-term growth. This approach aligns with the Keynesian belief that during times of economic hardship, government spending is necessary to prop up the economy and drive recovery.