Question

Describe why Keynesian demand management policies were renounced during the neoliberal period. And explain the difference between the objective of Keynesian tax cuts from the supply-side objectives.  

( At least 100 words)

Answer 1

The Keynesian inspired demand policies were renounced during the neo liberal period because neo liberal economists believed that fiscal policy interventions by the government are unnecessary and also harmful for the economy. The government policies were given up because the main aim of fiscal policy became a balanced budget. The aim of the monetary policy also moved towards stable prices rather than a combination of low unemployment and low inflation.The aim shifted with the appointment of Paul Volcker to the position of Chairman of the Federal Reserve.

The main objective of the Keynesian tax cuts was to stimulate the demand side of the economy by increasing the consumption expenditure which will increase overall aggregate demand in the economy. The main aim of the supply side objectives is to stimulate the supply side of the economy by increasing the aggregate supply in the economy rather than aggregate demand. This will also lead to fall in prices as opposed to rise in the price level brought about by demand side policy of tax cut.