• "Animal Spirits" in this article (and generally) refers to consumer confidence. We have heard this expression in a prior assignment when studying Keynes' beliefs.

4. Do you think borrowing trillions of dollars and spending it to put people back to work and try to dig the US economy out of recession is wise, or should the US government be practicing better fiscal responsibility?

That depends. Drawing on Keynes' beliefs, expansionary fiscal policy is very often beneficial in stimulating an economy in times of recession; it creates new jobs, puts those unemployed back in jobs/positions, and returns a nation's AD back to regular levels. However, from what we have seen over the last few years in the United States, we can very evidently see that more sophisticated and more appropriate fiscal responsibility and policy is necessary and urgently called for. The next elections, coming up in 2012, will hopefully give us the opportunity to correct the flagrant, misguided, liberal, economic policies followed by the current US Presidential Administration.

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• The rich tend to make up a much smaller proportion of a national economy, and the average-income households make up the majority of an economy. Therefore, MPC will increase only slightly, because avg. income households will save more money than consume. The rich will consume more, but since they make up a usually very small proportion of an economy, as mentioned, the MPC will increase only slightly, compared to the majority of the population.

2. How can government borrowing drive up interest rates, and why is this a concern to policy makers deciding on the size of a fiscal stimulus package?

• The government is competing against the private sector for money, thus driving up interest rates on the money, because it is limited in amount. The reason this concerns policy-makers is because the higher the interest rates, the more money they will have to pay back when they must re-pay the money they borrowed.

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Lower income people spend a higher percentage of their income than the wealthy, who tend to save more.

2. How can government borrowing drive up interest rates, and why is this a concern to policy makers deciding on the size of a fiscal stimulus package?

Governments sell bonds to finance deficit spending. This increase in supply of bonds drives down their price, thus increasing the interest earned on each bond. To compete with the higher return offered by government bonds, private banks must raise interest rates. These higher interest rates decrease the level of investment, a potentially dangerous consequence.

3. What are the animal spirits the article mentions? Where have you heard this expression before?

We heard this term in the Keynes vs. Hayek rap video, where Keynes referenced animal spirits. They are the confidence or lack thereof that consumers and investors have. Higher confidence leads to higher investment and consumption, while the opposite is true for lack of confidence.

4. Do you think borrowing trillions of dollars and spending it to put people back to work and try to dig the US economy out of recession is wise, or should the US government be practicing better fiscal responsibility?

I believe it is a good idea, because it is the most effective way of driving up demand and restoring confidence. However, repeated and long-term borrowing can bankrupt a government, so restraint is needed to a certain degree.

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When the Government spends too much then interest rates will raise so that G can get some money back.

Animal spirits, is the fact that human's are not perfect therefore why nothing in economics can be definitely calculated to the specific person. Because nobody is exactly the same. And I heard this is class yesterday.

I think this is good because if I remember this is called a stimulus package The whole goal of the stimulus package is to supply AD with a kick which would then restore company's revenue. This is done with the idea that it remains like that so company's start re-employing workers.

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2. If the government borrows too much then interest rates will be pushed up because the government will have lost a lot of money in it's borrowing of money and will drive up interest rates in order to gain some money back; this could then lead to a "crowding out" in public investment. And this is a concern to policy makers because the bigger the fiscal stimulus package the higher the interest rates will be and the lower public investment will be leading to no output increase.

3. The animal spirits referred to in this article is in sorts the bare instincts or faith of the people to their government. For example, the Keynesian believe that lower interest rates could revive the faith of the people and drive them to help their government and invest more into new capital. This term was also mentioned in the rap video we watched in class about the Keynesian vs. Classical views on macroeconomics.

4. I think it's a good idea because government spending has a solid theory which supports that AD should increase and even multiply after a stimulus package is poured into the economy. Also I think it's a better idea than the classical point of view that the government should not do anything because the economy will fix itself…but that could take a while and I feel obliged to quote Keynes's motto "In the long-run we're all dead". Although the economy could self-correct eventually there are too many unemployed people for the government to just sit on its hands and do nothing. If an increase in G leads to an increase in AD in addition to an increase in I + C depending on the multiplier, and with AD shifting out the economy should gradually move towards an equilibrium PL with the NRU or Yfe then why not do it? In my mind there is no doubt that Obama and his team did the right thing.

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government borrowing drive up interest rates because if the government needs to borrow money then they usually borrow a lot of money, therefore they increase the amount demanded and the rates go up.

I think that borrowing trillions of dollars and spending it will put people back to work, since it seems like what an entrepreneur has to do. an entrepreneur borrows money to start a business then makes enough money to pay back the loan. just now the government is doing it and people will be paying back by taxes.

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