Question

Does the current government and FED policy resemble Keynesian or classical? Explain why?

Answer 1

The current government and FED policy actions reflect the use of recommendations given by Keynesian Economics. Keynes suggested in order to come out of the recessionary period, the government should intervene and increase its spending on infrastructure so that the domestic demand could be increased.

Keynes also suggested that the discount rate should be lowered in order to increase the level of money supply. Higher money supply increases the purchasing power and boosts the aggregate demand and help the economy to come out of recession.

So, the current government tries to correct the situation through continuous interventions and is likely to follow the Keynesian Economics.