John Maynard Keynes: The Cause Of Economic Downturns

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1. According to John Maynard Keynes, what is the cause of economic downturns and what is his prescription for them?
Economic downturns according to John Maynard Keynes are caused by insufficient aggregate demand. The total demand of goods and services goes down, meaning the reduction in goods and service consumption, impacts negatively on production and employment matters. Falling income and aggregate demand are the consequences of insufficient demand.
Saving is not good for the economy because it lowers the consumption in products, demotivates the business production, and then, lay off employment, at least during the recession. Furthermore, during the recession, the economy is believed not to recover itself. Or it will be too long for the
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Without the interference of government, the economy will not recover itself, or have steady low growth. It is the ideal of Keynesian theories that government should interfere and spend more money to push the economy growth and full employment during recession (Sarwat Jahan, Ahmed Saber Mahmud, and Chris Papageorgiou, 2014). However, government fiscal and monetary policy if a firm and strict “subsidization system under central planning” will demotivate “production and business”; this causes wasted resources and low efficiency (Binh Nam, Chi Pham, 2003). Thus, though external funding from foreign country, and the government fiscal policy of spending itself still creates economic fluctuation, unstable growth (Binh Nam, Chi Pham, 2003). This was true for Vietnam since Doi Moi policy was …show more content…
The policy was divided into 3 periods (Binh Nam, Chi Pham, 2003). From 1986-1991, it raised budget expenditure. Showing Vietnamese “heavily relied on external resources” (Binh Nam, Chi Pham, 2003). However, the consequence of the first period is inflation and requires the country to print money, to keep continually spending. The fiscal and monetary policy at that time was to minimized printing money to control inflation, reform structure. The budget expenditure was separated and responsible of state companies for their own profit and loss (Binh Nam, Chi Pham, 2003). By tax cut and equalization, the government has been successfully motivate and create “equal playing field” and “encouraging production” of business, such as entrepreneurship, and “promoting economic growth” (Binh Nam, Chi Pham,

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