keynes presntation

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  • 8/8/2019 Keynes Presntation


  • 8/8/2019 Keynes Presntation


  • 8/8/2019 Keynes Presntation


  • 8/8/2019 Keynes Presntation


  • 8/8/2019 Keynes Presntation


    U nemployment during the Great


  • 8/8/2019 Keynes Presntation


    Fi scal Pol icy

    Regulat ing the nat ions tax ing and spend inglevels.

    Pr imi ng the Pu m p m eant that govern m entitself should start spend ing in order tostart the econo m y grow ing aga in.

    Keynes noted that even def icit spend ingby the govern m ent mi ght be appropr iatepolicy in certa in c ircu m stances

  • 8/8/2019 Keynes Presntation


    Monetary Pol icy

    Is the del iberate regulat ion of thenat ions m oney supply and interest rates .

    But, If the supply ofm

    oney and creditincreases too rap idly, the result w ill be a

    per iod of r is ing pr ices known as inflat ion.Therefore, It is the role of the F ederalReserve to watch the supply of m oneyin c irculat ion, alter ing it when necessaryto avo id rap id inflat ion.(Zim babwe & Argent ina)

  • 8/8/2019 Keynes Presntation


  • 8/8/2019 Keynes Presntation


    Keynes General Theory

    Says Law cannot hold. (Supply creates its owndemand.)Keynes contended that a general glut wouldoccur when aggregate demand for goods wereinsufficient, leading to an economic downturnwith unnecessarily high unemployment andlosses of potential output.In such a situation, government policies couldbe used to increase aggregate demand, thusincreasing economic activity and reducingunemployment and deflation

  • 8/8/2019 Keynes Presntation


    Keynes General TheoryTherefore, consumption depends primarilyupon income, not interest rates.

    C { C(r), but rather C = C(Y)People dont change their standard of livingsimply because the interest rate changes a fewpoints.Saving occurs as the result of a habit,convention, or social norm. People on average setaside a certain percentage of their income.Saving is not a function of interest rates.Investment is related to interest rates, but alsoto business peoples expectations for the future.As a result, business decision makers will tend tounder-invest, further worsening the problem ofdeficient investment.

  • 8/8/2019 Keynes Presntation


    Keynesian Philosophy

    Government stimulation and control in theeconomy is necessary to its general health.Without the government intervening theeconomy will not prosper as well as it should.Stimulation should generally be approachedthrough encouraging consumption in the

    market place.A healthy public debt should be around50 % 70 % of the countries GDP.

  • 8/8/2019 Keynes Presntation


    Why Keynesian theory is again imp today?

    Internationally, two institutions that Keyne'schampioned have experienced enhanced roles in theglobal economy, the International Monetary Fundand the World Bank.

    Keynesian concepts are once again popular and inuse today especially in the U nited States underthe Bush (II) administration. They remain verypopular with political leaders, since they provideintellectual cover for doing what political leadershave always done when seeking to put offconfronting the real problems that afflict aneconomy.

  • 8/8/2019 Keynes Presntation


    Keynesian Spending CycleNew law calling for Government spending.(health, security,housing packages)Tax dollars run out.(reduce them since U S is healthy canafford them)FD prints additional money for the treasury so that theprojects continue.Public debt is increased.Additional money enters the market.

    Value of dollar goes downGDP goes up as the money supply has increased.(1.4percent and 3.8 percent creating up to 2.3 million jobs )Rinse and Repeat

  • 8/8/2019 Keynes Presntation


    The need arose because of falling sales and homeprices, coupled with rising levels of defaults andforeclosures, have led consumers to slow down theirspending.

    Timely, targeted and temporary - $ 787.2 BillionEnergy:$ 54 BillionScience and Technology:$16 BillionInfrastructure: $ 90 billionEducation:$141 billionHealth Care: $151 Billion

    Jobless Benefits: $102 billion

    U S Stimulus Packages

  • 8/8/2019 Keynes Presntation


    U S Stimulus PackagesU S Government actually sends (stimulus)cheques to U S people. Expecting that theywill spend the 2000 $ and hence the GDP

    goes up. Though this distorts naturalmarket as it creates artificial demand.But its not so easy, In the long run thestimulation false, it doesn't produce the

    real wealth.Obama successfully letting the $825 BillionDollars simulation approved in the house.

  • 8/8/2019 Keynes Presntation


    Indias Stimulus Packages

    First Stimulus Package announced by Government ofIndia on 7.12.2008

    Second Stimulus Package announced by Governmentof India on 2.1.2009

    Third Stimulus Package announced by Government ofIndia on 24.2.2009

    Fourth set of Stimulus provided through ForeignTrade Policy by Government of India on 26.2.2009

  • 8/8/2019 Keynes Presntation


    On the monetary side , the RBI has sought to pump sufficientliquidity into the banking system to enable bank credit to meetthe expanded requirements of the economy keeping in mind thecontraction in credit from non-bank sources.

    Banks have been provided adequate liquidity through a series ofreductions in the CRR and additional flexibility in meeting theSLR requirement.Interest rate reductions have also been signaled by reductionsin the repo and reverse repo rates, both the repo rate and the

    reverse repo rate were cut by 100 basis points.Access to external commercial borrowings has also beenliberalized so that borrowers capable of accessing funds fromabroad are allowed to do so.

    Indias Stimulus Packages

  • 8/8/2019 Keynes Presntation


    In recognition of the need for a fiscalstimulus, the government had consciouslyallowed the fiscal deficit to expand beyondthe originally targeted level because of theloan waivers, issue of oil and fertilizer bondsand higher levels of food subsidy.

    Indias Stimulus Packages

  • 8/8/2019 Keynes Presntation


    III rd Stimulus Package

    Service Tax Rates reduction by 2%.Central Excise Rate reduced by 2%.

    Government announced that 4% across theboard cut in Excise DutyGOI has extended the flexibility to statesto deviate from fiscal consolidation targetsby 0.5%

  • 8/8/2019 Keynes Presntation


    IV Stimulus PackageSpecial Package of Rs. 325 crores for Leather and Textilessector.U nder Export Promotion Capital Goods Scheme (EPCG), exportobligation extended till 2009-10 for exports during 2008-09.

    Public Sector Banks to grant need based ad hoc Working CapitalDemand Loans up to 20 percent of the existing fund based limitsin respect of units having overall fund based credit facility up toRs. 10 crore.

    Reserve Bank of India has provided finance facility of Rs. 7000crores to SIDBI to support incremental lending either directlyto MSEs or indirectly through Banks, Non-Banking FinanceCompanies (NBFC) and State Financial Corporations.

  • 8/8/2019 Keynes Presntation


    Drawbacks of the Keynesian Theory:

    Rise in InflationIncreased Deficit - what forms as an act ofstimulus package for the economy , at one sideof the coin; would contradict as rising deficiton the other side of the coin, thus defeatingthe very purpose of the reviving economy.

  • 8/8/2019 Keynes Presntation


    Feasibility of Keynesian theory in IndianSlowdown:

    Indian economy, which largely relies on the domesticeconomy, has willfully approached the slowing mantra withsound monetary and fiscal measures. This has ensured that inthe present growing recessionary environment, the worldover, the country is not as reliable on exports to other

    countries as a major part of its over-all trade. The soaringgrowth has come to a halt with a slight slowdown in thegrowth figures.

    Rising Infrastructure Spending in the Domestic economy:Fundamentally, India has not gone wrong on any majoraspects. But, the infrastructure spending continues to belower side even till date.

  • 8/8/2019 Keynes Presntation


    Feasibility of Keynesian theory inIndian Slowdown:

    The Keynesian approach is more useful in case of Indian economy thanU S economy where there is faltering on certain fundamental factorswhich specifically needs a correction in initial phase.

    On the other hand, Indian economy which is still largely deprived from

    domestic infrastructure spending would specifically benefit on accountof large government spending on infrastructures & industries alongwith cut in tax rates which may disburse more liquidity in the hands ofpeople and thus enabling higher spending & consumption phenomenon.

    So, India stands a better chance to gain recovery of economy onimplementation of Keynesian approach than the prospects of the same


    S economy. Though, any such domestic recovery may also dependto a great extent on global linkages & other domestic factors.

  • 8/8/2019 Keynes Presntation