Keynesian Theory Explains Governmental Role In Economy Economics Essay

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The Keynesian theory is very important because it explains and displays how and why the government is needed to help control the economy especially during a recession or depression. It is controlled by the congress and the president and went into effect after the Great Depression because the classical theory was not proving to be the correct approach anymore, which was refusing any government assistance and letting the economy self-correct itself disregarding the time frame it took to do so. The difference between these two approaches is the fact that instead of waiting for the economy to bring itself out of a recession or depression, the government interferes to alleviate the economy in the short run, thus speeding up the process back to recovery. The Keynesian theory proved to be effective and since then has been the chosen method of the government. Some of the ways the theory has been effective is through government spending and tax cuts with discretionary and nondiscretionary fiscal policies. When the government spends may spend money on things such as education, employment, and technology which then causes a "multiplier effect" by increasing consumer spending. This also applies for when possible tax cuts are made because more people are willing to spend more which then increases aggregate demand. There are thousands of ways and strategies that the United States has applied in order to help the economy overcome debt and regain its economic level. In our report we are focusing on a few of those aspects which are: education, tax cuts, defense spending, and social security stimulus. These are very important areas that really control a lot of the aspects and concepts of the U.S economic system.

In America, there are millions and millions of schools that would be better off if the technology in school where more advanced. If the U.S spent more on enhancing the technology in schools then the demand for it would rise and more kids would want to be to learn. Congress approved Obama's $787 billion economic stimulus bill. States will get $53.6 billion in what's called the state stabilization fund. A portion of the money, about $39 billion went toward helping states restore cut programs such as early-childhood education, after-school programs, professional-development money, and actual school staff. Other money spent in the Education Stimulus include; $2.1 billion for Early Head Start and Head Start estimated this funding will affect about 124,000 infants and preschool children age 0-5 who belong to low income families, $13 billion for Title I, the program that aids schools with a high number of low-income students to help fund extra programs, $12.2 billion for IDEA, a program for special education grants, $200 million for the Teacher Incentive Fund, which supports programs for teacher-performance pay.

In 2009, there was a grant enabled by the government to spend more on the technology for education. Enhancing Education Through Technology (EETT) grant applications contains high-quality, proven assessments, innovative practices, teacher professional development, extended time for learning, engaging technology-based learning strategies, data-driven instruction, and 21st Century Skills are all part of the master plan for a more globally competitive education system. (plato). The EETT funding as part of this reform strategy focuses the spotlight specifically on the potential of technology in today's classrooms. In addition, the EETT grant process is the responsibility of the Education Technology office in many states, with State Education Technology directors playing a key role in the design of the grant applications. This provides opportunity for additional "voices" in the reform efforts for many states. (moses).

Tax cuts and increases in spending have are a benefit to the economy when properly applied. In chapter 8 we talked about the expansionary and contractionary policies which shows a model of the effect of a tax are decrease on aggregate demand. When taxes are cut there will be an increase in aggregate demand, however in most instances tax policies will have a relatively minor impact on aggregate demand. In theory, if the U.S were to cut the taxes then people would be spending more money which has a multiplier effect on the economy. When President Obama was inaugurated into office he already had a plan of trying to set the U.S up so that the recession would decrease. His stimulus package plan dealing with the taxes early this year was very dramatic, yet provided U.S citizens with extra money that helped everyone. These are some of the figures fir 1 year dollar in real GDP per dollar reduction in federal tax revenue or increase in spending. "Tax Cuts: Nonrefundable Lump Sum Tax Rebate 1.02, Refundable Lump Sum Tax Rebate 1.26, (temporary tax cuts) Pay Tax Holiday 1.29, Across the Board Tax 1.03, Accelerated Depreciation 0.27. (chinn)" These numbers show where money was spent, what tax cuts were applied, and the effect on GDP. The more money that people save on taxes will help them to be able to spend on more than what they could afford each and every day creating a multiplier effect. President Barack Obama said the stimulus legislation approved by Congress last year has boosted economic growth and already provided more than $160 billion in tax cuts to U.S. taxpayers and businesses. Since Congress approved the legislation in February of 2009, the economy has begun to emerge from the worst recession since the 1930s and it grew at a 5.6 annual rate in the fourth quarter, the biggest gain in six years, according to data from the Commerce Department released last month (bloomberg business).

The social security stimulus package was designed to help more people who are receive social security and veteran's affairs benefits. The Economic Stimulus Act of 2008 gave eligible recipients $300 for individuals and $600 for married couples even if they did not file a tax return. Recipients with eligible children younger than 17 received an additional $300. The 20.5 million people who qualified include retirement, disability or survivors' benefits from the Social Security Administration; disability compensation, disability pension or survivors' benefits from the Department of Veterans Affairs; Tier 1 benefits from Railroad Retirement, certain combat pay. Those who qualify must make at least $3,000 in any earned income from wages, salaries, tips or net earnings from self-employment that are includible in taxable income along with their current benefits.

Without government fiscal stimulus packages and social security programs acting as an economic stabilizer and social buffer, the current crisis may have become more severe than that of the Great Depression, could have generated consequences that were far worse than those in the depression years after 1929. Calculations of Social Security monthly paycheck amounts are based on the cost of living. Due to the recession this has not seen any rise, and this check is something to compensate for the same prevailing amount. This additional pumping of funds is supposed to boost the economy and also help the people who receive Social Security in general. (sam)

Proven throughout many different strategies and ways the Keynesian theory has been extremely beneficial towards stimulating the economy since the Great Depression. It has helped many different Americans get back on their feet when in financial burden with programs such as food stamps, welfare, and unemployment. As well as upgrading schools with the latest technology to assure students of any age a more fruitful education. The government have also helped slow down the current recession from possibly facing a depression by redirecting government spending and issuing tax cuts to stimulate economic growth, which if the government keeps interfering like it has been then U.S. will be in a better state and on to recovery faster than not interfering at all.