Problem Set 3 Complete all questions listed below. Clearly label your answers. Will increases in government spending financed by borrowing help promote a strong recovery from a severe recession. Why...

Question - ECON-214 / 519987.
Question: PROBLEM SET 3
Complete all questions listed below. Clearly label your answers.
1. Will increases in government spending financed by borrowing help promote a strong
recovery from a severe recession. Why or why not?
2. Does fiscal policy have a strong impact on aggregate demand? Did the shift of the
federal budget from deficit to surplus during the 1990s weaken aggregate demand?
Did the government spending increases and large budget deficits of 2008–2011
strengthen aggregate demand? Discuss.
3. What is the current rate of unemployment? (See bls.gov and state the month you are
reporting.) How rapidly has GDP grown during the past 3 years? (See bea.gov and
state the annual growth rate for each year.) What do these figures indicate about the
validity of the Keynesian view?
4. Are changes in discretionary and fiscal policy likely to be instituted in a manner that
will reduce the ups and downs of the business cycle? Why or why not?
This assignment is due by 11:59 p.m. (ET) on Monday of Module/Week 4.

Answer.1: It is general, as per established macro economic theories and it is accepted all
over the world that, increase in government spending financed by internal borrowings,
increases money supply in the inland banking system and in home market. The method is
helps to promote a strong recovery from a severe recession.
In a severe recession, peoples are tend to save their hard earned money for the purpose of the
need of future and are under sheer shyness that future will may more darker than the present.
In such a shrinkage in spending by the people, particularly fixed income people i.e. salary
holder, government employees are not making any big spending, except the ordinary food,
medicine and running cost of vehicles and carrying the same till recovery of general economy
resurfaced.
But, once the economy engulfed by the vicious circle of excessive and obsessive saving
spiral, the chances of economic recovery becomes more and more difficult. The spening is
receded and unemployment is increased by closure and lay off in manufacturing sector and
also in the service sector including the travel industries, as the travel can be deferred by
domestic individuals and households for the time being.
The usual gateway of...