The government should increase the demand to improve growth
Keynesian AD/AS theory states that the government should increase the demand to improve growth (Tregub, 2016). The president and government must inject income, which results in more spending in the economy, leading to more investment and production. The initial injection will stimulate a torrent of events that will generate economic activities that are a multiple of the original investment. It is per Keynes’s argument, the solution to recession is by stimulating the economy by combining two approaches. The first method involves the government investing in infrastructure, and the other is by reduction of interest rates (Tregub, 2016).
As the president, I would stimulate the economy by stepping up to raise spending either by the government buying goods itself or increasing the money supply. Increasing government spending will stop the decline in the economy by increasing spending hence creating more jobs that improve consumers’ power of buying. The Keynesian approach emphasizes aggregate demand implying that companies produce output if they are capable of selling.
Consumption expenditure is critical to avoid a decline in the economy, and it refers to the ability of individuals and households to spend on services, durable and nondurable products (Tregub, 2016). durable goods are long lasting and provide value over time, such as cars. Nondurable goods are those that are gone after consumption, and they include things such as groceries. Services are intangible things such as entertainment and healthcare. During a recession, citizens tend to hold back spending leading to more layoffs, which then leads to the decline in the economy (Tregub, 2016).
In conclusion, to avoid recession, the government has to inject income to enable its citizens to purchase goods and services, which increases spending and, in turn, more investment and production. The government should also reduce taxes as a way of stimulating economic growth. The president should focus more on stimulating the economy and not controlling it.
References
Tregub, I. V. (2016). Keynesian model and the modern economy. International Scientific Review, (2), 84-87.