John Maynard Keynesian Government Intervention

John Maynard Keynes does not believe that an economy can self-adjust, he believes that government intervention is necessary for an economy to recover after a downturn. The policy prescriptions are for the economy to be stimulated through government spending, lower interest rates or a reduction in taxes. Keynes was not very popular when he first proposed his ideas and for some time afterwards his ideas were not accepted. Keynes published a book on how to deal with economic downturns, specifically a depression. One policy prescription that began to make the Keynesian policy popular was government spending. During the Great Depression people were unable to spend the money that was needed for the economy to adjust automatically as believed by classical

economists. It was during this time period that government spending increased which is believed to have been the reason for the U.S. economy to recover from the Great Depression as well as the belief that the policy prescriptions offered by Keynes could control the economy in a more precise way by changing taxes and spending. This resulted in politicians using the prescription policy as an excuse for government spending which in the end resulted in unemployment and inflation during the 1970s which is when the policy prescription stopped working and was no longer providing a solution for the economic problems that had been caused by years of government spending. The Keynesian way of solving the problem, via government spending, was seen as causing more problems than solving them which made economists turn to having the Federal Reserve lower interest rates, this stopped working in December of 2008 when interest rates reached an all-time low of zero percent. After this incident, government spending was the next option and it was turned to so that the Obama administration would spend six hundred fifty billion in order to stimulate the economy, therefore returning to a Keynesian prescription policy.
The three major expenditures of the ARRA are taxes, healthcare and education.

The combined expenditure for the ARRA is five hundred forty three billion dollars. The first expenditure is directly related to the fiscal policy of taxes. In this case, the tax expenditure has the intention to stimulate the economy by increasing disposable income for individuals as well as corporations. The second and third most important expenditures of the ARRA directly relate to the fiscal policy of public expenditure. These public expenditures had the intent to stimulate the economy because it would increase jobs therefore increasing disposable income and aggregate demand. This stimulus package for the great recession was closely related to Keynesian economics because it required a high level of government intervention in order for the economy to recover. The stimulus package depends heavily on government spending which is a key aspect in Keynesian economics. In order to achieve this, the ARRA focuses on increasing tax refunds which is a way of government spending. As well as spending money on healthcare and education. These three expenditures stimulate the economy through government

spending.
The Keynesian stimulus for the great recession was a success to some extent.

When focusing on real gross domestic product the stimulus helped increase it. The ARRA was signed into law by President Obama in February of 2009, it was in March of 2009 that the real gross domestic product began to increase once again after having plummeted drastically for the previous year. The real gross product was immediately affected by the ARRA making it a success in this aspect. However, when focusing on the civilian labor force it was also immediately impacted by the ARRA, however, the positive effects did not last as long as those for real gross domestic product. The civilian labor force in March of 2009 in thousands was roughly 154,000 by May of 2009 it increased in thousands to 154,747 but then began to decrease drastically once again. The civilian labor force has steadily increased since the recession reaching a high of 159,286 in thousands in March of 2016. The civilian labor force participation rate continued to decrease after the ARRA was signed from July of 2009 to December of 2009 the civilian labor force participation rate decreased by 1.1%. It has since continued to steadily decrease reaching a low of 62.4% in September of 2015. The civilian unemployment rate in March of 2009 was 8.7%, it continued to increase until October of 2009 where it reached 10%. The unemployment rate then began to slowly decrease. The unemployment rate stayed closer to 10% than dropping to or below 8.7%

until October of 2011 when it reached 8.8%. The unemployment rate has since continued to steadily decrease reaching a low of 4.9% earlier this year. The ARRA did work even though the effects were not immediate but have continued to impact the economy and did help the U.S. recover from the great recession.