Current economic conditions, due to pandemic, is compared to Global Recession 1929, especially in terms of its impact of Gross Domestic Product (GDP), and Unemployment. GDP of most of the countries in the world shows declining trend because of Covid – 19 and lockdown implemented world over. Along with declining production, unemployment is also increasing, many companies world over have started downsizing, salaries of employees are reduced by nearly 40 – 50 percent. Government across countries, including India, are taking various measures to stabilize the economic conditions. Most governments are worried about declining GDP rates and increasing unemployment rates. Economic conditions are quite similar to the conditions prevailing during great depression 1929. During great depression, unemployment rate increased to around 25 percent. During the period 1929 – 1932 World GDP declined by about 15 percent. During the tough time John Maynard Keynes (J. M. Keynes) made and attempt to understand the economics behind great depression and suggested the solution in this book “The General Theory of Employment, Interest and Money” released in 1936. The solution came in the form of simple equation;
Y = C + I + G + (X – M) where,
Y = National Income
C = Consumption
I = Investment
G = Government Expenditure
X = Exports
M = Imports
This equation tells us that National Income depend on aggregate demand which in turn depend on consumption demand, investment demand, government expenditure, and next exports. Increase in aggregate demand will increase aggregate supply i.e. production and employment. Keynes has advocated increase in government expenditure and reduced tax rates to stimulate demand. In his book, Keynes has categorically presented a view the reducing wages is not the solution to the problem. The basic idea propounded by Keynes was simple; keep people fully employed, government is required to run fiscal deficit when economy is slowing down, because private sector would not invest enough to maintain production at its normal level, and bring the economy back to track. Working on Keynesian principles, many countries have survived the recession.
The theory propounded by Keynes is quite relevant in present context, even though situation today is not of recession but depression. Following the recommendation form the theory government should;
Government of India has taken some measured to support Indian economy from recession, but the results do not support the efforts. Last quarter GDP data released shows economic growth has declined by nearly 24 percent. This is high time for the government to take quick actions to support economy, moving from recession to depression.
Dr. Kishor Bhanushali, Director – Academic Administration, Unitedworld School of Business (UWSB)
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