Oscar Wilde, an Irish writer, once said "to do nothing at all is the most difficult thing in the world, the most difficult and the most intellectual." While the most intellectual people are believed to be in charge of our world's financial systems, those who have supported big-money stimulus's flooding the free market prove to be our world's most un-intellectual. However when evaluating the Federal Reserve (FED), European Central Bank (ECB), or the Peoples Bank of China (PBC) the predicament remains the same. Is it more cost effective during a fiscal trough to lower interest rates dramatically and increase governmental spending? Or is better to do nothing? This query remains the same; to truly know what is better for an economy, the benefits and drawbacks of demand-side economics must be evaluated.
.
As it is known, Keynesian economists believe that, in the short run, productive activity is influenced by aggregate demand, and that aggregate demand, contrary to Say's Law, does not necessarily equal aggregate supply. Instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation. For example, as the short run is key we can evaluate the actions the US FED took after the collapse of the sub-prime mortgage market. Commonly referred to as the Stimulus or The Recovery Act, President Obama introduced $831 billion dollars attempting to benefit the global markets. However, while President Obama only thinking about the short term, the inflation rate did deflate from 2.9% in 2007 to -.4% in 2009. However, in 2011 the rate jumped to 3.2%, showing that erratic behaviors don't lead to long-term benefits.
While advocates of Keynesian economics will argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes, monetary policy actions by a central bank and fiscal policy actions by the government are needed to stabilize output over the business cycle.
