Question: In 1971, President Richard Nixon declared “We are all Keynesians now,” a sentiment that was actually first expressed by Time magazine in 1965. What he meant was that mainstream economists and policy makers all agreed on the need for the government to use spending and tax policy to stabilize the economy.

An increasing number of people are expressing the same sentiment today. In the article “Putting the air back in,” The Economist discusses several reasons for the growing consensus that governments from Japan to the U.S. must spend their way out of the current recession. Please read the article (available via the link in External Links) and explain – in 500 words or less –

A. Why monetary policy alone might no longer be enough to combat the recession.

B. What dangers some people see in using fiscal policy to combat the recession.

C. What you think the appropriate policy should be.