Economics DD202B-1 Essay Example | Topics and Well Written Essays - 1000 words

Economics DD202B-1 - Essay Example Every other economic variable gave up simultaneously as is obvious from the next graph that depicts the trends taken by the rate of unemployment and that of inflation. While the rate of unemployment had reached a peak during 1933 when it equalled 25.2%, the rate of inflation as measured by the GDP deflator had been -11.46% in 1932. Hence, the economy at that point of time was suffering from a heavy recession. In fact, such was the vigour of the crisis that the monetarists could not inject liquidity into the nation even through lowering the rate of interest, supposed to discourage deposits and encourage loans. People around the economy had lost their trust in its fundamentals and wanted to hold back whatever they could, so that aggregate demand was low. A low aggregate demand triggered a low aggregate supply and thus, equilibrium output production was low as well. The national government in their attempt to correct the scenario, restricted international trade and adopted a protectioni st policy, which deteriorated the problem further. It was when every school of economics had failed to correct the impact of Great Depression that the Keynesian school of economics came to as the rescuer. John Maynard Keynes ruled out the prevailing classical concepts of economic growth. Instead he stressed upon spending of more money. He instructed the national government to open up to international trade and hence, stimulate aggregate demand and supply. Moreover, he also suggested the administration to invest heftily into the economy even if that amounted to incurring deficits. Moreover, the rate of employment must be at its maximum achievable point so that people start earning and hence are instigated towards more spending (Barro, 2008, p. 405). This strategy introduced by Keynes came to be known in macroeconomics as the Keynesian school of