Examine the role of current and historical fiscal policies

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Expert Solution

Fiscal policy is a tool of the government to monitor and influence its economy. It's a complementary policy of the monetary policy. Basically through fiscal policy government manages its expenditure and revenues so as to regulate the economy. This policy is based on the Keynesian theory. The government uses this theory to influence the macroeconomic parameters by adjusting tax income and expenses.

The historical fiscal policy of the US was based on the principle of no government intervention with the belief that a budgetary balance will be automatically be maintained. But this belief proved to be wrong during the great depression of in the 1930s. Since then the Keynesian principles replaced the old belief and became the contemporary fiscal policy. Even Keynes was of the suggestion that to increase the money circulation in the economy the government can follow fig out and fill it up policy.

Rahul Sunny answered 1 year ago

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