What was the gold standard and why was it a problem in the great depression? 2. What event kick started spending by the US government in 1941? 3.In your own words, write about whether or not you think government spending in time of economic turmoil improves the economy.

What was the gold standard and why was it a problem in the great depression? 2. What event kick started spending by the US government in 1941? 3.In your own words, write about whether or not you think government spending in time of economic turmoil improves the economy. What effect does spending have on the circular flow? 4.What are some good that are regulated by the free market? what would happen if those goods had a set minimum price? 5.Think of some examples where the government subsidizes good or services.

 

 

answer:

1.A gold standard is a monetary system in which the standard economic unit of account is based on quantity of gold.In this system, gold is used a currency or medium of transaction.

During the time of great depression, government was unable to engage in expansionary monetary policy. There was acute shortage of gold in the market,gold standard became a problem. High interest rates needed to be maintained, in order to attract international investors, who bought foreign assets with gold. High interest also inhibited domestic business borrowings. The Federal Reserve was unable to expand the money supply to stimulate the economy,fund insolvent banks and fund government deficits which could have been pumped up the economy.

2.In order to bring back the economy out of depression,government spendings kick started. Government pumped much of investment in opening up of new factories and funded the increased production in order to provide employment to several people in the country.

3. Government spending in time of economic turmoil really improves the economy. Government funds the opening of new factories, provides employment opportunities to several people in the country and thus the lifestyle of people improves. In addition increased production through government spending also improves the GDP of the economy. Surplus production is thus exported, which leads to increase in the earning of foreign currency and thus overall condition of the economy improves.Government provides easy loans to the common public for initiating the entrepreneurial activity in the country,which also generates employment opportunities.

In the circular flow of income, due to increase in government spending, there will be improvement in the infrastructure of the economy. Government will provide easy loans to the common public for initiating the entrepreneurial activity. In return, government recovers this spending at a later stage form the common public by imposing various types of taxes. Due to entrepreneurial activity in the country, the production and thus the GDP will improve, which would lead to more of exports and less of imports.

4. Free market are those markets where there is no intervention from the government in terms of taxes, subsidies or any other rules and regulations. Individuals and firms have full flexibility and freedomto enter, exit or participate in the business transactions. Food crops are the goods operating in free market. If such goods have a set minimum price, all the sellers will have to follow the same price, otherwise they are going to lose the customers. Demand is perfectly price elastic in free markets. At a certain price ,maximum demand would be there, but by making any changes in the price, all the customers would be lost.

5. Government subsidizes the goods of common use such as LPG cylinder, and the goods meant for weaker section of the society like seeds and fertilizers for the farmers.

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