Research Assignemnt About Hayek vs Keynes on Economic Recession

Hayek vs Keynes on Economic Recession
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Hayek vs Keynes on Economic Recession
Introduction
The government develops macroeconomic goals that are aimed at ensuring that there is a sustainable economic growth in the nation. Economic growth is identified through a continuous growth of the gross domestic product (GDP) to meet the needs of the people. A recession occurs when the economy is experiencing a decline in the GDP for consecutive quarters of the economic period. The recession leads to a reduction in income to the people and unemployment in the nation. The decline in the disposable income in the market leads to a decrease in the number of products and services consumed by the public. The government is required to ensure that the households have required an income that will ensure a constant purchase of products from the firms in the economy. Governments develop monetary and fiscal policies that are aimed at increasing the amount of money supply to handle the economy recession (Friedman 2016). The financial industry is required to ensure that the strategies implemented deals with the changing supply and demand for money in the economy to handle cases of a recession in the economy. John Maynard Keynes and Friedrich August Hayek view on recession aim at ensuring that the policies implemented can avoid the reduction in economic development.
John Maynard Keynes Views on Recession
The recession in the economy requires proper measures in ensuring that it is properly handled towards the achievement of set long-term objectives by the government. According to Skousen (2009), John Maynard Keynes comes up with the Keynesian economic theory during the 1930s. According to the Keynesian theory during the recession period, the individuals tend to hold back spending due to the reduced performance of the economy. The government is required to focus on increasing the government expenditure while reducing the tax rate for an individual to increase the money supply in the market. Money held by the public leads to a severe breakdown in the nation due to uneven demand and supply of money. It is essential for the government to ensure that the people are encouraged to spend money despite the recession period to effectively handle the situation of the economy. The John Maynard Keynes views on recession were to focus on household investment for economic development rather than on government spending (Gillman, 2015). The households make up the large parts of the economy, thus developing plans that will ensure a sustainable performance of the people. Disposable income in the economy is required to be enough to ensure that the money is enough for expenditure and investment towards a sustainable economic growth in the nation. The money supply and demand require proper monetary policies that will regulate the performance of the economy. Monetary policies are required to provide the required amount of money for circulation in the economy (Borner, Brunetti & Weder 2016). Reduced money supply in the economy is the primary contributor to the recession in the economy where corporations are unable to acquire profits from production and increased rate of unemployment in the economy. Proper evaluation of the sectors that are holding money for the economy is crucial in coming up with plans that will offer required amount of money constant economic performance.
The government and people are required to focus on investment in the recession period to ensure that there is increased money circulation in the economy. The government is required to develop infrastructure projects that will provide employment and money to the economy for a steady performance of daily operations in the nation (Borner, Brunetti & Weder 2016). Recession leads to reduced demand for labor which leads to an increased rate of unemployment to the public. The firms tend to inform the employees of reducing their wages to deal with the crisis in the economy. Firms are required to ensure that there are no reduced wages to employees for improved motivation towards maximization of profits from production. The government develops programs for ensuring that there are entrepreneurship and investment in the economy to handle the increased money demand in the economy. The monetary policies of reduced taxation are used to reduce the cases of holding money in the nation. The government develops fiscal policies of increasing the tax rate to the high-income earners with the additional money from the taxation used to boost the supply in the nation (Skousen, 2009). Businesses and individuals are required to borrow money from a financial institution once the credit interest rate is reduced by the government. The money acquired is used for investment purposes to handle the recession through a stable money supply and demand in the nation.
Friedrich August Hayek Views on Recession
The economy requires being regulated by the demand and supply of commodities in the market. Friedrich August Hayek views on recession focuses on ensuring that there is a free market where the price is determined by the demand and supply of commodities (Cohen et al. 2014). Market complexity is the main reason for recessions in the economy requiring individuals to have adequate knowledge of the economy in coming up with decisions that will positively impact the financial performance of the nation. The free market is essential in attracting investors to the economy towards a sustainable performance in the nation through increased financial generating projects. Monopoly and government interference in the market is the main contributors to the recession of the economy as the consumers are against the prices implemented after the market interference. The economic fluctuation is required to be regulated through proper evaluation of the demand and supply of commodities in the market (Coale & Hoover 2015). The reduced government intervention in the market makes it possible for commodities to identify the equilibriu...