Political Economy Keynesian Economics Questions
Fiscal policy in Keynesian Economics refers to the use of government spending and taxation to influence the overall economy. According to Keynesian theory, during times of economic downturns or recessions, the government should increase its spending and/or decrease taxes to stimulate aggregate demand and boost economic activity. This is known as expansionary fiscal policy. Conversely, during periods of inflation or economic overheating, the government should reduce its spending and/or increase taxes to cool down the economy and control inflation. This is known as contractionary fiscal policy. The goal of fiscal policy in Keynesian Economics is to stabilize the economy and promote full employment by managing aggregate demand through government intervention.