Policy Topic: Assume we are in the depths of the 2009 Recession. What should we do?
After the financial crisis began in late 2008, President Bush and then President Obama both introduced heavy stimulus measures to increase output. Using the AS-AD Framework, discuss these measures and all of their effects. How would the Keynesians explain the story? Compare and contrast this to how the classicalists would explain the story. How would both schools suggest the US would get out of a recessionary gap? Use many graphs, math, and discussion. In particular, assume a Classical version of the AS curve; and then separately assume a Keynesian one. Discuss your findings.