SummaryInflation and unemployment are probably two of the most used economic indicators of how well a country is doing. Both are to be carefully measured, in order for governments to be able to keep them under control. In this LP we learn about what these two concepts are, and how to tackle them.
Fiscal policies are demand-side economic policies through which the government acts over its income and expenditure in order to influence the levels of income, output and unemployment of the economy. The government may do this via income taxes and unemployment benefits, or by discretionary measures, such as taxes on spending and increasing public spending. By increasing demand, firms are incentivized to produce more and therefore to hire more workers.
Keynesianism believed fiscal policies as the best tool to control the economy of a country, especially to reduce cyclical unemployment. Monetarism and following economic doctrines as New Classical Macroeconomics and New Keynesian Economics consider them to be ineffective in the long run, as demand cannot be increased continually.