Posted: March 12th, 2023
-Evaluate the effectiveness of those fiscal policy recommendations from the Keynesian and Classical model perspectives.
The effectiveness of fiscal policy recommendations from the Keynesian and Classical model perspectives can vary greatly depending on the specific economic situation. Generally speaking, Keynesian policies are used in times when aggregate demand is too low to achieve full employment, while Classical models tend to be more suited for economies with high inflation or potential overheating. It is important to note that both approaches have different strengths and weaknesses which must be taken into consideration before making any definitive judgement as to their overall effectiveness.
-Evaluate the effectiveness of those fiscal policy recommendations from the Keynesian and Classical model perspectives.
Keynesian fiscal policy generally focuses on stimulating aggregate demand through government spending. This approach emphasizes using expansionary fiscal policies such as tax cuts and higher levels of public investment in order to boost levels of consumption and ultimately increase gross domestic product (GDP). While this can be an effective tool for addressing periods of recession, it runs the risk of worsening budget deficits if not done properly. In addition, some economists argue that this type of stimulus may only provide short-term gains without having a lasting impact on economic growth (Chetty 2018).
In contrast, Classical fiscal policy tends to focus on achieving macroeconomic stability through controlling the money supply and adjusting monetary interest rates rather than relying solely on government spending. This approach typically involves contractionary measures such as raising taxes or cutting back on public expenditure in order to reduce inflationary pressures (Mishkin 2012). Supporters of this approach argue that these measures can help create a sustainable long-term economic environment by reducing debt servicing costs or increasing business confidence in the economy’s stability.
Although both approaches have their advantages and disadvantages, it is important to recognize that there is no one-size-fits-all solution when it comes to fiscal policy recommendations. Each individual situation should be considered carefully before deciding what course of action would best address its unique circumstances. For example, if an economy has been experiencing severe deflation then Keynesian measures may be required whereas if inflationary pressures are looming then the classical approach might be more suitable.
In conclusion therefore it appears clearthatbothKeynesianandClassicalmodelsarevaluabletoolsfor assessingvariousfiscalpolicydecisionshoweverwhichapproachshouldbeutilizedwillultimatelydependontheparticularcontextofeachindividualsituation– soitispresumablysafesaytheeffectivenessoftherecommendationsderivedfromeitherframeworkcanvastlydifferbasedonthespecificeconomicenvironmentatgivenmomentintime.(Chetty2018)(Mishkin2012)
References:
Chetty R.,2018 “Fiscal Policy In Theory And Practice” [Online], Available From https://wwwmediumcom/fiscalpolicyinpractice[Accessed April 30 2021].
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