FISCAL POLICY

A comparison between fiscal policy and Keynesian theory



A comparison between fiscal policy and Keynesian theory

Introduction

Fiscal policy refers to the government's use of spending and tax policies to influence the economy. When the government increases its spending for defense purposes or raises personal income tax rates, it affects the total level of spending in the economy and, hence, will affect the overall macroeconomic activity of a nation measured by such factors as gross domestic product (GDP), employment, and inflation.

Keynesian theory, originally a depression-economy model, emphasized short-run demand stabilization through fiscal policy using either new government spending or deficit-financed ...