Answer to Question #177869 in Macroeconomics for Dia Ahuja

Question

 a closed economy has recently suffered on account of a global economic meltdown and its economy has been in a slump ever since. Many of its citizens have lost jobs and are unemployed now. The Government has decided to undertake more public work programs in order to revive the economy. However, there exist very deep divide with respect to the pursuance of this program in academia. While some of the economists feel that the exercise would be wasteful and inefficient, there are many others who completely support the policy decision of the government. discuss

Answer 1

Solution:

The initiative by the government to undertake more public work programs in order to revive the economy is a brilliant idea that can enhance, or stimulate economic development and growth.

This is an example of an expansionary fiscal policy tool used by the government to stimulate the economy during recession. An increase in government spending directly increases demand for goods and services, which can assist increase output and employment. The purpose of this tool is to reduce unemployment, increase consumer demand and prevent recession.

By undertaking more public work programs, the government puts more money into consumers hands to give them more purchasing power. It also reduces unemployment by encouraging more economic activity by contracting public works, or hiring new government staff. These increases demand and spurs economic spending resulting to more economic development and growth, allowing the country to move away from recession.