Thesis on fiscal policy and economic growth

Trade and Globalization Trade and globalization policies have major effects on the wages and incomes of American workers and on the vitality of American industries such as manufacturing.

Thesis on fiscal policy and economic growth

The classical tradition of partial equilibrium theory had been to split the economy into separate markets, each of whose equilibrium conditions could be stated as a single equation determining a single variable. The theoretical apparatus of supply and demand curves developed by Fleeming Jenkin and Alfred Marshall provided a unified mathematical basis for this approach, which the Lausanne School generalized to general equilibrium theory.

For macroeconomics the relevant partial theories were: Keynes sought to supplant all three aspects of the classical theory. Precursors of Keynesianism[ edit ] See also: UnderconsumptionBirmingham School economicsand Stockholm school economics Although Keynes's work was crystallized and given impetus by the advent of the Great Depressionit was part of a long-running debate within economics over the existence and nature of general gluts.

A number of the policies Keynes advocated to address the Great Depression notably government deficit spending at times of low private investment or consumptionand many of the theoretical ideas he proposed effective demand, the multiplier, the paradox of thrifthad been advanced by various authors in the 19th and early 20th centuries.

Keynes's unique contribution was to provide a general theory of these, which proved acceptable to the economic establishment. An intellectual precursor of Keynesian economics was underconsumption theories associated with John LawThomas Malthusthe Birmingham School of Thomas Attwood[7] and the American economists William Trufant Foster and Waddill Catchingswho were influential in the s and s.

Underconsumptionists were, like Keynes after them, concerned with failure of aggregate demand to attain potential outputcalling this "underconsumption" focusing on the demand siderather than " overproduction " which would focus on the supply sideand advocating economic interventionism.

Numerous concepts were developed earlier and independently of Keynes by the Stockholm school during the s; these accomplishments were described in a article, published in response to the General Theory, sharing the Swedish discoveries.

Robertson in his The Fallacy of Saving, in earlier forms by mercantilist economists since the 16th century, and similar sentiments date to antiquity. In it he attributes unemployment to wage stickiness [13] and treats saving and investment as governed by independent decisions: This perception is reflected in Say's law [20] and in the writing of David Ricardo[21] which states that individuals produce so that they can either consume what they have manufactured or sell their output so that they can buy someone else's output.

This argument rests upon the assumption that if a surplus of goods or services exists, they would naturally drop in price to the point where they would be consumed.

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Given the backdrop of high and persistent unemployment during the Great Depression, Keynes argued that there was no guarantee that the goods that individuals produce would be met with adequate effective demand, and periods of high unemployment could be expected, especially when the economy was contracting in size.

He saw the economy as unable to maintain itself at full employment automatically, and believed that it was necessary for the government to step in and put purchasing power into the hands of the working population through government spending. Thus, according to Keynesian theory, some individually rational microeconomic-level actions such as not investing savings in the goods and services produced by the economy, if taken collectively by a large proportion of individuals and firms, can lead to outcomes wherein the economy operates below its potential output and growth rate.

Prior to Keynes, a situation in which aggregate demand for goods and services did not meet supply was referred to by classical economists as a general glutalthough there was disagreement among them as to whether a general glut was possible. Keynes argued that when a glut occurred, it was the over-reaction of producers and the laying off of workers that led to a fall in demand and perpetuated the problem.

Keynesians therefore advocate an active stabilization policy to reduce the amplitude of the business cycle, which they rank among the most serious of economic problems. According to the theory, government spending can be used to increase aggregate demand, thus increasing economic activity, reducing unemployment and deflation.

Samuelson puts it as follows: The producers of these goods will now have extra incomes Henry Hazlittwho considered Keynes to be as much a culprit as Kahn and Samuelson, wrote that The textbook multiplier gives the impression that making society richer is the easiest thing in the world: In Kahn's paper it is harder.

For him the initial expenditure must not be a diversion of funds from other uses but an increase in the total amount of expenditure taking place: On p Kahn rejects the claim that the effect of public works will be at the expense of expenditure elsewhere, admitting that this might arise if the revenue was raised by taxation, but says that other means are available which have no such consequences.

As an example he suggests that the money may be raised by borrowing from banks, since This assumes that banks are free to create resources to answer any demand.

But Kahn adds that For it will be demonstrated later on that, pari passu with the building of roads, funds are released from various sources at precisely the rate that is required to pay the cost of the roads.

It is the orthodox Treasury dogma, steadfastly held The first proposition would ascribe to us an absolute and rigid dogma, would it not? Pigou was at the time the sole economics professor at Cambridge.

Nor were his practical recommendations very different: Keynes was seeking to build theoretical foundations to support his recommendations for public works while Pigou showed no disposition to move away from classical doctrine.Fiscal policy is now contractionary in many major economies.

Structural reform momentum private sector investment and wage growth is needed for global economic activity to accelerate. in line with downward revisions to GDP growth.

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OECD. Interim Economic Outlook Economic Outlook Economic Outlook. Fiscal policy is playing an important role on the economic and social front of a country. Traditionally, fiscal policy in concerned with the determination of state income and expenditure policy. But with the passage of time, the importance of fiscal policy has been increasing continuously for attaining rapid economic growth.

Fiscal policy and economic growth - ScienceDirect - Abstract. This paper describes the empirical regularities relating fiscal policy variables, the level of development. Fiscal Policy Essays. Fiscal Policy Supposing the status quo of the United States today states that: there is no real unemployment, the consumer price index is rising at 2 percent annually, and the federal government budget deficit, billion dollars, is equal to 5 percent of the gross national product.

order to evaluate the effect of monetary policy on economic growth in Nigeria.

Thesis on fiscal policy and economic growth

Objectives of the Study Achieving price stability and ultimately economic growth is the major objective of monetary policy. The Economic and Fiscal Policy Statement (EFPS) is issued in fulfilment of section 14 of the Public Finance Management Act (). The EFPS seeks to inform and ECONOMIC POLICY ENVIRONMENT Malawi Growth and Development Strategy (MGDSII) 2.

The Malawi Growth and Development Strategy II (MGDS II) continues to anchor.

FISCAL POLICY AND ECONOMIC GROWTH: EXPLANATION WITH EMPIRICAL ANALYSIS