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"Monetary Policy"
Monetary Policy
Author:
Sylvia Schiavoni
Fiscal Policy on GDP from Keynesian view

Classical economic theory (Adam Smith, etc.) assumed that a "free-market" economy is a "self-regulating" system that continually tends towards full-employment equilibrium, with optimum economic benefits for everyone. Therefore, the best government economic policy is to "get out of the way" and give maximum freedom to individual enterprise. The term 'Classical' refers to work done by a group of economists in the 18th and 19th centuries. Much of this work was developing theories about the way markets and market economies work. Much of this work has subsequently been updated by modern economists and they are generally termed neo-classical economists, the word neo meaning 'new'. Classical economic believed that the government should not intervene to try to correct this as it would only make things worse and so the only way to encourage growth was to allow free trade and free markets.

A key element of the "Keynesian revolution" was its demonstration that these basic assumptions are false, both in theory and practice, and its assertion that, the most appropriate government macro-economic policy is to view the whole economy as if it were a single huge business enterprise which needs to be managed as one. During the great depression John Maynard Keynes asked, "If supply creates its own demand, why are we having a worldwide depression? In view of this question he advocated massive government intervention to bring an end to the Great Depression.

Fiscal Policy is when a national government makes decisions on taxation and spending with a view to influencing the level of production and employment. (Fiscal Policy and the Simple Keynesian Model, 2003)To many people, the Keynesian Revolution is often associated with the rationalization of active government macroeconomic policy. Indeed, one of the major appeals of Keynes's General Theory was precisely that it seemed to...

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essay on Monetary Policy
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Added:
02/02/2012
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