Keynesianis a theory that expounds on business cycle while supply-side fiscalpolicies refer to theory of non-cyclic growth. According toKeynesian, too much demand for the savings is the root cause ofrecession. This helps in explaining the happenings in some of thedepressed economies. On the other hand, for the supply side theory,excess taxation eventually holds back theory, which to some extent istrue for given level of taxation.
Inorder to alleviate stagflation, the Keynesian policies should apply.Often, for the Keynesian policies, demand is known to be a criticalfactor for an economy to recover. According to this policy, economycan then be made better by through offering of tax rebates.
TheUS government can indeed go broke due to its huge national debt. TheU.S government will be considered broke at the point when all itsdebt and the interest on the debts are much higher than the country’sincome. In the event that the national debt is not sorted out, theburden to pay it is automatically passed to the next generation.Every working generation has the obligation to work and pay taxes.Therefore, for every bracket of retired individuals new taxpayers whoinherit the debts replace them.
Tochange the interest rates, Federal Reserve System uses the TargetFederal Funds Raise. The set rates are those that can be bore by themarket. Usually, for the Target rates, they are negotiated betweenthe lending banks and borrowing banks. Nonetheless, the opinion ofFed is known as it sets a target rate that in most cases is within arange. If the rates that the banks are negotiating on are outside thetarget range, then Fed goes ahead and executes action referred to as“open market operations”. According to Keynesian view, higherspending by the government in an economy can help in recovery duringrecess while for the monetarism view, to control inflation, moneysupply has to be checked.
Accordingto Keynesian, it is a mistake to wait for markets to stabilize ontheir own while monetarism view hold that expansionary fiscal policyis not the best, as it will lead to inflation.