Campaign for Job Security

How can fiscal policy be used to help workers like Joe?

Fiscal policy is the use of government spending and taxation. There are two types of economists, which are the Keynesians and Classical economics. In this case, the two economists disagree on the effective of fiscal policy on unemployment.

Firstly, the Keynesians says yes, fiscal policy can be effective in reducing unemployment. In a recession, expansionary fiscal policy will increase AD, causing higher output, leading to the creation of more jobs.

The Classical economics, on the other hand, says no. Fiscal policy will only cause a temporary increase in real output. In the long run, expansionary fiscal policy just causes inflation and does not increase real GDP. Classical economists argue that to reduce unemployment it is necessary to use supply side policies which increase the flexibility of labour markets.

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2 Comments »

  1. Peter Anthony said

    Pat, you will have to make a decision as to what theory you follow and then make policy proposals to help the unemployed.

  2. […] President’s Dilemma: 1, 2 and 3 […]

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