The effectiveness of fiscal policy between the Neo-Keynesian and the Essay

The effectiveness of fiscal policy between the Neo-Keynesian and the Monetarist framework - Essay Example Fiscal policies affect the demand and supply patterns in an economy, if the government imposes heavy taxes on various commodities the consequences are that prices will increase and demand will be low. If such a trend continues, supply will reduce and eventually the company will quit the market if not shift its concern to another line of production and this will result to retrenchment processes and low-income rates to the losers (workers). At the long run, the government will observe a lower G.D.P (gross domestic product) and reduced income per capita (Dwivedi 17). If a government engages in operations that will see it maintain expenditures at a desired level, it will have practiced fiscal policies. The practice is effective through adjustments in taxes, interest rates and the spending styles of the government itself (Musgrave, Frank, & Elia 80). Through the practices, the government either helps the final consumer, but whether this happens as anticipated is dependent on the shifts th at the government employs either to vary rates on increased or decreased edge. The policies show relevance to those of the monetarists. Neo Keynesian theory stipulates that the factors to a progressive economy revolve around demand. The factors are demand itself, produced output and the rate of employment. The theory argues that an economy enjoys stability when the factors are exercised but not to the maximum exploitation of its output. The rate of employment in a country increases income per capita. This stimulates demand since buyers are able to decide and make purchases promptly at their will. Increase in demand will lead to increase in price or supply accordingly. The simultaneous changes in demand and supply factors will result to inflation if the prices increase considerably (Satora and Richard 67). At this point, government intervention becomes a point, and therefore measures must put in place to create harmony among the factors, this is referred to as fiscal policies. In mos t cases, the government will borrow money from the economy by issuing premiums, it may also issue decrees to the lending facilities on a stab to minimize the amount of money in supply, and it may impose taxes and duties over the produce. The practices as well will reduce spending patterns leading to reduced production. Eventually jobs will be lost resulting to economic recession. Monetarists argue that whenever a country revamps money into the economy, chances are that growth is in the short-term, and the ultimate result will be the pressure of inflation. They state that a slight change in government policies will affect the market either positively or negatively and reflect at the short and long runs. It is during inflation that the entire consumer group will cut down on spending since prices are high. The country will face unemployment problem since suppliers will be quitting the markets. Entirely, the country will not pose an attracting site to the investors due to adverse curren cy fluctuations. Understanding that subsequent currency fluctuations will result to devaluation, the country finds itself in a rather bitter position as its currency will affect exportation of goods. Therefore, it will have set an economic sanction to itself