The origins of many ideas seen in fiscal policy come from John Maynard Keynes a revolutionary economist who tackled the idea of aggregated demand through Keynesian economics. Aggregate demand is the demand for gross domestic product or goods and services that the country has to offer. It is represented by the formula GDP=AD= C + I + GS+ X or (C) Consumption, (I) Investment, (GS) Government Spending, (X) Net exports. Fiscal policy in essence is using tactics such as government spending and tax cuts in order to affect the right side of this equation and increase aggregate demand.
The general agreement across Keynesian theory is that boosting aggregate demand is the precise thing to do when facing an economy with lackluster growth and on the shores of recession. Leading up to most recessions there is a significant reduction in demand for goods and services offered in the country. This lower demand leads to inventory reductions, lower production levels, layoffs and increased unemployment. In order to stabilize the economy, th...
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Plumer, Brad (2013). The U.S. labor force is still shrinking. Here’s why. Retreived from
Tcherneva, P. 2011. “Permanent on-the-spot job creation—the missing Keynes Plan for full
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Tcherneva, Paulina. 2011. “Fiscal Policy Effectiveness: Lessons from the Great Recession.” Levy Economics Institute of Bard College.
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