Question

What is fiscal policy? When the government attempts to generate economic growth through fiscal policy, what are the differences between Keynesian economics (demand creates supply) and Supply-side economics (supply creates demand), and which would be more beneficial now?

Answer 1

To control and influence the state of the economy, government uses certain tools like change in taxes or government spending. These are called fiscal policy.

Government attempts to generate the economic growth through fiscal policy when economy is going in recession. I mean, when there is no worry of inflation and and government knows that if they invest today by using fiscal policy by incurring a fiscal debt then economy will come out of recession and government will be recover its debt by growth in GDP.

the major difference between Keynesian and classical economist is that, Keynesian economis assumes rigidity in prices where classical economists assumes complete flexibility in prices. other major difference is mentioned in the question itself. Keynesian economists consider that economy is majorly demand driven. that is, if there is no demand in the economy then there will be no supply in the economy. On the other hand supply side economy says that economy run on the supply side bsais. this means that if there is supply in the economy then price will automatically adjust and total supply will be demanded. so there is no possobility of supply side glut in the economy. keynesian economics talks and advocate about government intervention in the economy if needed. where as supply side economists says that government intervention is not desirable. supply side economists say economy adjust automatically in best way.

Today I think all of us accept that we are living in Keynesian world. Hence keynesian way would be beneficial.