Which fiscal and monetary policies might "activist" Keynesian economists recommend to help

Question

a depressed economy regain full employment? Critics of Keynesian policies cite the problem of "crowding out". What is crowding out, and what impact does it have on the outcomes of Keynesian policies?

Answer 1

Fiscal Policy is when the gov't intervenes so that it can increase the aggregate demand or the aggregate supply so that it reaches the full employment level. The gov't intervenes by increasing its expenditure (i.e on defence, health care, pensions... etc.) or by decreasing taxes. All these increase the costs of the gov't, which leads them to borrowing more. When the gov't borrows more and goes into a heavier debt "crowding out" occurs. Keynesian economists believe that through monetary policies (such as increasing the money supply) the "multiplier effect" will occur where 1 person spending 1 dollar for example will make the seller 1 dollar richer, and then the seller spends the dollar somewhere  else till the dollar is divided amongst several people hence the multiplier effect. So yes through fiscal and monetary policies, the gov't has  to raise its cost which may to crowding out. Hope this helps good luck!