Keynesian Put – What is it and how does it work?

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The expectation that the government would boost the economy via fiscal policy is referred to as the Keynesian put. It is anticipated that the government would spend money in order to keep the economy rising. The phrase was first coined by the analysts at Bank of America Merrill Lynch in 2016 as an expression to expression their approval to both economic policies of Keynesian economic theory and the Greenspan put, and since then it has been used widely.

What is Keynesian Put and Explanation?

In 2016, analysts at Bank of America Merrill Lynch created the phrase "Keynesian Put," which means "Keynesian sell." In addition to being a nod to the economic theories of 20th century British economist John Maynard Keynes, who urged the governments to spend more cash when demand was weak, it is also a parody of the term Greenspan Put.

In order to sustain growth and lower inflation the Government and federal authorities promised to spend more money and therefore the term, Keynesian Put. After the global financial crisis in 2007-08, the financial sector has seen a shift where central banks have now adopted extreme accommodative monetary policies.

Against this backdrop, a revival of backing for Keynesian-style fiscal stimulus methods has fueled hopes that governments across the world would utilize spending power to stimulate the economy, and aid in the stabilization of asset values.

Example of Keynesian Put

Despite the recommendation from a major American Bank, Keynesian Economic Policies have found very few takers. The investors of private companies or large nations have not completely adopted this approach in its entirety. Canada is one example that has partially adopted Keynesian economics in its country and continues to implement this policy out of all the major developed countries.

Beyond the proposal by U.S. presidents to boost fiscal expenditure in response to Brexit, other central banks such as the Bank of England have followed suit, Germany is being held to a higher standard of austerity than the rest of the European Union, and Japan is contemplating fiscal stimulus.

The Impact of the Keynesian Put

While the impact of Keynesian Put remain subjective, the policy brings vast amount of infrastructure investment in order to improve the facilities of roads, construct new airports, build better hospitals, and by providing broadband internet connectivity. These immediate investments could see growth in the economy and have a significant impact on the businesses and the GDP.

While many welcome this theory and Government expenditure, critics blame such policies as it results in massive deficit and eventually results in increase of inflation. Keynesian was implemented with an idea to lower inflation but when Governments spend more money, they increase inflation and put pressure on the common man.

Published on 28-Jul-2021 08:00:58