Fiscal policy and budget deficit in theory
Ekonomikos referatas. Introduction. Theoretical part. Fiscal policy. Budget deficits and surpluses. Fiscal Policy and Aggregate Demand. The fiscal policy transmission mechanism. Classical and Keynesian views of fiscal policy. Secondary effects of fiscal policy. Conclusions. Literature.
Figure 1 The channels involved with the fiscal policy transmission mechanism – in the example shown focus on an expansionary fiscal policy designed to boost demand and output.
/Figure 2 The Keynesians' argument in favor of expansionary fiscal policy
/Figure 3 Combating inflation using contractionary fiscal policy
Compared two different views of fiscal policy, became clear that:
According to Keynesian theory, government should interfere very much through government purchasing. Money is not a reason, but a result of expectation
Classical theory could lead to a deep depression. Market hasn’t be affected by government. The main point should be putted to the money stock. Actually, this could lead to the lack of money. As demand for money would be higher, none would be responsible for this and it would be the reason of economy suffering and it would lead to a deep depression