Economic question 2?

Question

1)On those rare occasions when the economic benefits of accelerated infrastructure spending are discussed, it is usually in the context of countercyclical role assigned to such spending by John Maynard Keynes, leading to charges of make work projects with little economic value. Precious little is said about the critical links that exist between quality infrastructure and…

a)Explain what is meant by the countercyclical role and how it works

b) In the context of the countercyclical role, are make work projects equal value to quality infrastructure? Why or why not?

c)Complete this clipping.

Answer 1

a)Explain what is meant by the countercyclical role and how it works

Ans: Business cycles means the cycle of raid economic (GDP and employment) expansion with prices rising faster as the peak is reached followed by recession/ depression when output employment and prices fall till trough is reached and an economic recovery begins. Countercyclical role means the some measures like higher/ lower govt. spending can work to reduce the amplitude of the cycle by reducing  demand as the economy approaches the peak of the booming conditions and increasing govt. spending to lift aggregate demand as the economy slids into recession and gets into depression. Govt. spending even in make work projects can counteract recession/ depression caused by weakening aggregate demand. Such projects create employment and income for people and hence lifts the aggregate demand in a multiplier process.

b) In the context of the countercyclical role, are make work projects equal value to quality infrastructure? Why or why not?

Ans: No, make work projects are not of equal value to quality infrastructure projects. First, while make work projects just create artificial employment and give incomes to hitherto unemployed persons, quality infrastructure not only does the same but also enhances the future potential to increase output and improves the quality of life. Quality infrastructure spending increases the efficiency of the economic system. Better roads, more power pklants, more road transport and port facilities, turnpikes, shipyards, education institutions, hospital and health clinic, increase productivity and augment the future productive capacity.

c)Complete this clipping.

Ans: (Precious little is said about the critical links that exist between quality infrastructure and…) future economic growth potential as also efficiency of the economic system.