Discuss The Policy Tools Recommended By Keynes – Coursework Example
Policy Tools Recommended By Keynes Keynes puts forward an economic theory based on the general circular flow of income. From the theory, he argues that when there is an increase in the level of earning in an economy the expenditure also increases, as well. The condition continues until when it get to a level that all earnings that people are getting almost equals the expenditures they are having. He continues that when one person spends, the amount that a person spends goes to another person’s earnings. Therefore, one ends to support another person with earnings and the cycle continues.
From the video, Keynes solely supports two tools to be sued in influencing the economy. These tools are revenue and the spending (FreeTheNation). Revenue is the money collected in the form of taxation from the public and other private sectors. Taxes are levied based on the incomes gotten from firms, businesses, private and public sectors and even from individuals earning. Hayek opposes this by affirming that there is a loss of motivation to work from the heavy taxation imposed on huge incomes.
Spending tool, on the other hand, depict the decrease or increase on expenditure from the government to control the economy. Government will spend through transferring of payments, current expenditure and on assisting national projects that may be running on a budget deficit. The expenditure is from the borrowing that attracts interests (Hansen 76)
Hayek opposes this concept, by saying that the idea deters people from acquiring the money because of high interest rates attached to it. In my opinion, I think that there should be low interest rates on borrowings and incomes made, for this will encourage hard working and investment, which improves any economy of a given country.
Hansen, Bent. The Economic Theory of Fiscal Policy, Volume 3. Abingdon: Psychology Press, 2003. Print.
FreeTheNation. Keynes vs. Hayek Rap Video. You tube video clip, Feb 10, 2010.