'Keynesian policies to solve the problem of unemployment will not work because they will conflict with the attainment if other key Macroeconomic aims' Discuss this view in detail.

Expert Solution

arrow_forward

Step 1

Keynesian macroeconomics mentions, that the solution to a recession is on account of the expansionary fiscal policy, that is caused due to the tax cuts to stimulate consumption and investment and it can also be due to the direct increases in government spending which would account to the shift in the aggregate demand curve to the right. Expansionary fiscal policy would include the tax cuts or increases in government spending that has been inclusive of the stimulate aggregate demand and it can help the economy to move out of the recession.

arrow_forward

Step 2

Due to the, Keynesian advocated policies, he emphasizes that it can cause the conflict in main ideas. Firstly, aggregate demand would be more likely than aggregate supply which can cause the short-run economic event to experience the recession. Second, wages and prices can also become sticky, and it would account for the economic downturn leading to unemployment.

As per the Phillips curve which show a trade-off between unemployment along with inflation in an economy. Keynesian macroeconomics mentions how in the economy, it can cause the inevitable solution to a recession and it can lead to the expansionary fiscal policy causing a shift to the aggregate demand curve to the right. Subsequently, the Keynesian policy occurs on account of the economy which can operate above potential GDP. In a situation like these, the unemployment is low, but as the inflationary rises to a certain price, a level can lead to a problematic situation. The Keynesian response should be contractionary fiscal policy and it is necessary to shifts aggregate demand to the left. Contractionary fiscal policy would include the tax increases or cuts in government spending that can cause a decrease in aggregate demand along with the reduced inflationary pressures.