Question

What is the Keynesian prescription for recession? For inflation?

Short answer

The Keynesian prescription for recession is for aggregate demand, policies such as tax cuts for consumers and businesses would need to shift to the right to stimulate consumption and investment.

The Keynesian prescription for Inflation is aggregate demand must be shifted to the left by raising taxes or cutting government spending.

Step-by-step solution

The Keynesian prescription for recession

As per Keynesian macroeconomics, the answer for a downturn is an expansionary financial approach, for example, tax reductions to invigorate utilization and venture or direct expansions in government spending to move the total interest bend to one side.

The Keynesian prescription for Inflation

When the economy is performing above potential GDP, the Keynesian policy is implemented. In the present circumstance, joblessness is low, however, cost increments are a reason to worry. The Keynesian reaction would be a contractionary monetary arrangement, which would include increasing government rates or slicing government spending to move AD to one side. Subsequently, the cost level would fall, yet there would be little decrease in result or expansion in joblessness.