Question

Which economic school of thought would explain how massive government expenditures during world war ii sharply moved the country out of the great depression?

Answer 1

The correct answer is: "Keynesianism".

Keynesianism differed from previously-succesful economic theories which believed in no goverment interventionism in the economy. On the contrary, Keynes supported fiscal policy as the main tool that economic authorities could use to influence aggregate demand and, in turn, increase total output (GDP) and employment levels.

Increases in goverment spending would directly increase aggregate demand levels in a greater extent than the initial rise on spending due to the multiplicative effect. Moreover, those expenditures directly created more job positions, and less unemployed people is translated into more people earning a salary, consuming and investing and therefore, incresing aggregate demand levels even further.

Answer 2

The appropriate response is Keynesian financial aspects. These are the different speculations about how in the short run, and particularly amid retreats, the monetary yield is firmly impacted by total request.