Keynesians espouse an expansionary fiscal policy which seeks to increase aggregate demand enough to reduce unemployment and improve price stability. In contrast, contractionary fiscal policy aims to reduce aggregate demand without worsening inflation.
To do this, expansionary fiscal policy (i.e. Keynesian) seeks to increase government spending, decrease net taxes, or some combination of the two. Contractionary fiscal policy (espoused by Hayek) seeks to decrease government purchases and/or increase net taxes. Either results in shifting the aggregate demand curve to the right or left, respectively.
The aggregate demand is the total demand for final goods and services in an economy at a certain time; the demand for a country’s gross domestic product (GDP). Both macroeconomic policies aim to get the economy back to its potential output; that is, the economy’s maximum sustainable output where there are no surprises about price level.
Keynesians, in a nutshell, are proponents of the notion that free market doesn’t necessarily lead to the economic optimum, and that its failings need to be solved through government intervention. As such, they’re partisans of a strong public sector and increased spendings to boost the economy.
They’re named after economist John Maynard Keynes, who was the inspiration for Roosevelt’s New Deal in the 30s.
Proceed speaking, political understander.
To do this, expansionary fiscal policy (i.e. Keynesian) seeks to increase government spending, decrease net taxes, or some combination of the two. Contractionary fiscal policy (espoused by Hayek) seeks to decrease government purchases and/or increase net taxes. Either results in shifting the aggregate demand curve to the right or left, respectively.
The aggregate demand is the total demand for final goods and services in an economy at a certain time; the demand for a country’s gross domestic product (GDP). Both macroeconomic policies aim to get the economy back to its potential output; that is, the economy’s maximum sustainable output where there are no surprises about price level.
They’re named after economist John Maynard Keynes, who was the inspiration for Roosevelt’s New Deal in the 30s.
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