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During the Great Depression total production in the US stayed below potential output for many years, and the unemployment rate reached 25% in 1933. Many

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During the Great Depression total production in the US stayed below potential output for many years, and the unemployment rate reached 25% in 1933. Many economists argue that the WWII allowed the US to pursue one of its biggest government spending programs in history (as a result. the US government budget deficit was greater than 20% during the war. Currently the government decit is about 2.9% of GDP). Moreover, the government debt became more than 110% of GDP in late 19405 (currently it's about 104% of GDP). The massive mobilization of resources during the war helped the US economy recover. And certainly. following WWII. the US became by far the greatest economic power in the world. Some economists argue that currently there is still room for the government to increase its spending, so that aggregate demand increases, and then the output necessary to satisfy the greater demand. This would create more jobs. and then the economy would start moving forward by itself. Certainly, these economists argue that the additional government spending (that is, a new stimulus program) should be concentrated in improving and expanding infrastructure, since this type of expenditure gives "the most bang for the buck". What do you think about this policy recommendation? (To implement a new stimulus program) a) Would you support it? Yes? No? b) Why? Give TWO specic reasons that you are in favor or against this proposed policy. List them clearly (1 and 2). EXPLAIN each of your reasons using at least SIX lines for each reason. (10 POINTS)

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