Fiscal policy is the part of economic policy
Fiscal policy is the part of economic policy aimed at changing public finances to change supply and demand for conditions in society. Fiscal policy is often implemented to eliminate unemployment and inflation.
Fiscal policy only works in the short term
The use of fiscal policy has been criticized by monetarist theory. According to monetarist theory, fiscal policy only works in the short term. Fiscal policy can be ruined by the market, which in the short term can change production. The problem is that there are inflationary mechanisms that can come as a consequence of an expansionary fiscal policy and change interest rates, respectively. The consequence of this is that the investments respectively. increased and decreased prices, respectively. push-up, and exports respectively. improved and broken down due to the following, respectively. improved and weakened competitiveness.
The change in growth, respectively. increase and decrease the demand for labor, so that the resulting fiscal policy will have the opposite effect of what is envisaged in the long term. Given the strength of crowding in / out mechanisms can be difficult to predict, the monetarist argued that fiscal policy should not be implemented unless it improves market mechanisms. Fluctuations in the economy are a landscape, and politicians should only intervene where there is imbalance caused by inflation. The substance is to reduce the money supply through monetary policy, which, according to quantum theory, effectively leads to lower prices, thus ending inflation. Money should follow economic growth, such as maintaining a constant price and low price levels.
Contrastive and expansive fiscal policy
The use of fiscal policy defended by Keynesian theory as an important and effective tool for managing the economy so that it works. This is done by using the demand through contrastive and expansive fiscal policy changes, which according to quantum theory leads to a change in the course speed for money. Keynesian recognizes ‘crowding in / out’ mechanisms, but claims that they can be neutral through active monetary policy. Monetary policy should mainly be used to counteract the “crowding in / out” mechanisms, since monetary policy works through many links and is therefore weak as an independent agent.