Posted: March 12th, 2023
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.
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)
Chetty R.,2018 “Fiscal Policy In Theory And Practice” [Online], Available From https://wwwmediumcom/fiscalpolicyinpractice[Accessed April 30 2021].
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