Explain the two popular opinions held by economists on how to improve the economy

Question

What will be an ideal response?

Answer 1

The first solution is the Stimulus Solution. The majority of economists argued that to improve the economy shift in demand rightward was necessary. This could have been accomplished in a variety of ways. The government could have lowered interest rates to further boast private consumption. Another alternative would have been to massively increase the purchase of goods and services by government. The government’s demand for output could make up for the decrease in demand by private individuals and businesses. This government stimulus approach was the preferred method. The interest rates were near zero, making the first option much more difficult.
The second solution offered was the Structural Solution. A minority of economists opposed the government stimulus and believed the economy needed a structural adjustment. The allocations of resources before the economy allowed for inefficient firms to continue operation. This generated net losses for society (MB < MC). The only way to adjust the economy is to redirect resources from inefficient firms by letting them go bankrupt. Under this method, the government stimulus delayed the recovery by keeping the inefficient firms in businesses.