Basic Premises of Public Spending Policies
* a. Fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. The two main instruments of fiscal policy are government taxation and expenditure. Changes in the level and composition of taxation and government spending can affect the following variables in the economy: * a. Aggregate demand and the level of economic activity; * b. The pattern of resource allocation;
* c. The distribution of income;
* b. The primary goal of government spending is to raise aggregate consumption. Due to the higher level of government spending, income of consumers will expand, and consequently consumption expenditure will rise.
* John Maynard Keynes, 1st Baron Keynes of Tilton in the County of Sussex (5 June 1883 – 21 April 1946) was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, and informed the economic policies of governments. He built on and greatly refined earlier work on the causes of business cycles, and is widely considered to be one of the founders of modern macroeconomics and the most influential economist of the 20th century. His ideas are the basis for the school of thought known as Keynesian economics, as well as its various offshoots. * Keyenes: “The government should help-out the economy”. * Keynesian Economics was developed during the “Great depression”. * Keynes believed that there was only one way out from the great depression, and that was for the government to start spending in order to put money into private-sector pockets and get demand for goods and services up and running again. As it turns out, President Franklin D. Roosevelt gave this remedy a try when he started a massive public works program to employ a portion of the idle workforce. *
* Concept of Pump Priming-it refers to the injection of government funds into the income stream in sufficient...
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