Question

What are some key differences between Keynesians and Neo-classicists?

What is Fiscal Policy?

Who can make and control fiscal policies?

Answer 1

A)

Neo-classicists believed that market can adjust itself if there is some kind of shock. They believed in Laissez-faire form of market i.e. government should not interfere in market. Neoclassical model works well in long run and when economy is near full employment.

Keynesians believed that markets are not frictionless and some government interference is required in the market. They believe that government with the help of fiscal policy tools (tax and government spending) should stabilize the economy during shocks. Their model works well in short run during the time of recession when there is unemployment in the market.

B)

Fiscal policy is the use of tools like taxes and government spending to influence an economy.

C)

Mostly in all the countries Government make and control fiscal policies.

eg. In USA Fiscal policy decisions are made by the Congress.

Federal Reserve play no role in determining fiscal policy.