Fiscal Policy

Fiscal Policy - policy and government expenditure They held...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Fiscal Policy (A) Meaning and Importance of Fiscal Policy i) Introduction: Fiscal and monetary policies are the two important instruments in the hands of the modern public authority. During and after the Second World War period these have gained ever-increasing importance in macroeconomic analysis and policy. It was Keynes who first recognized the need of regulating private enterprise economy . In his General Theory (1936) he asserted that large-scale public expenditure is to be made from time to time to avoid cyclical fluctuations in economic activities and to maintain high levels of employment and income . Since then fiscal policy has come into prominence. Almost all modern governments today collect resources to the extent of 30 percent or more of the national income and spend this on a variety of economic activities. Classical economists before Keynes were opposed to large-scale fiscal
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: policy and government expenditure. They held a simple belief: "That government is best which taxes the least or which spends the least." This is because they were of the view that government spending causes unnecessary intervention in private economic activities. They believed that the free enterprise system is a self-equilibrating one and public intervention will only cause disturbances in its smooth working. But Keynes opposed such a view. He pointed out that throughout the 19 th century, western free enterprise economies have suffered frequent problems of cyclical fluctuation . The recent experience during the Great Depression (1929-33) is a flagrant example of it. During the Depression, output and employment levels fell by 40 percent for a prolonged time....
View Full Document

This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

Ask a homework question - tutors are online