The basic concept of Keynesian economics lies within the government’s expenditures to reduce the impact of recession during the natural process of the business cycle. The impact on unemployment and a slowed-down economy becomes one of the leading issues when a recession hits. Developed countries try to minimise the interest rates to provoke spending. This thought historically has proved that recession can be mitigated.
In the US, during the great depression, Keynes thought surfaced and since then recessions have been lowered with the control on interest rates and increase in government spending in the industry. However, in Pakistan, the recent increase of interest rate to 150 basis points will raise more issues than bring solutions. The government should reduce the interest rates to increase the employment level, which will eventually have an impact on the national income levels. If the monetary policymakers think that by increasing the interest rates inflation can be controlled, then this idea may not prove to be true for Pakistan. Since the inception of this government, inflation and interest rate have moved in the same direction. The decreased growth and employment levels and increased inflation can trigger stagflation. Lowering interest rates can be considered as a starting point to control the recession but we must not rely on the self-healing mechanisms of the economy.
Muhammad Mushafiq
Islamabad
