spending (G>T) through rises in government spending, a fall in taxation revenue or a combination of the two. This will lead to a larger budget deficit or a small budget surplus than the government previous had Expansionary fiscal policy is usually associated with a budget deficit An increase in government expenditure would lead to an increase in money supply (Expansionary policy) which as a result would lead to increase in aggregate demand. Contractionary fiscal policy (G<T) occurs
when net government is reduced either through higher taxation revenue, reduced government spending or a combination of the two. This will lead to a lower budget deficit or larger surplus. Contractionary fiscal policy is usually associated with a surplus budget, and as such reduces aggregate demand. The diagram below analyses how the three macroeconomic goals can be controlled with the above mentioned polices. Fig2 The classical economist assumes a state of full employment shown as QFe, although the Keynesian school of thoughts didn’t dispute the assumption they criticise the classicalist views on how to attain full employment in the long run siting the necessity of government intervention in the economy, which would shift demand curve to the right through fiscal policies (Increasing Government spending or decreasing tax); given unemployment rate at 20% and inflation rate at 3% the economy is approaching recession, as seen (fig.1) above the government can either choose to adopt fiscal or monetary policy or adopt both policies. Adopting fiscal policies would shift aggregate demand curve towards the right at AD*, this could also be achieved using monetary policies, although the government suffers the consequences of inflation at 10% with a continuous expansionary policy, shifting aggregate demand to AD2 from AD* thus it is necessary for the governments to also adopt contractionary policies in order to balance the aggregate demand curve at AD* maintaining inflation rate at 3% as well as achieving full employment.
MALTHUSIAN THEORY OF POPULATION Thomas Robert Malthus wrote his essay on “Principle of Population” in 1798 and modified some of his conclusions in the next edition in 1803. He feared that England was heading for a disaster, and he considered it his solemn duty to warn his country-men of impending disaster. He deplored “the strange contrast between over-care in breeding animals and carelessness in breeding men.” His theory is very simple. To use his own words: “By nature human food increases in a slow arithmetical ratio; man himself increases in a quick geometrical ratio unless want and vice stop him.The increase in numbers is necessarily limited by the means of subsistence Population invariably increases when the means of subsistence increase, unless prevented by powerful and obvious checks.”Propositions of Malthus theory; The first proposition is that the population of a country is limited by the means of subsistence. In other words, the size of population is determined by the availability of food. The greater the food
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