Different governments have a way to minimize spending and spend the cash they have to ensure that they meet the demands, needs, and desires of their citizens. Through this, they can monitor and regulate tax collecting, and spending thus either have a good economy or bad economy. Sound fiscal policy leads to better economic growth and a better relationship between states because a suitable environment created for them to exchange goods and services. For a nation to stabilize economically, they have to create a pleasant trading environment for the neighbors to buy and sell their products and services. In this work, more information will be given on fiscal policy, its theory, and it is implemented. Also, the economic base for the fiscal policy will be discussed and tools used in its application.
Rise of Keynesian
People and economists have tried to explain what lead to Keynesian. The reason many of the researchers advocate is that it was due to the inability of the British economy to arise and stabilize after World War One ( Rendahl, 2016 ). Economically British were destroyed, and they needed some other ways in which they could approach different issues and ensure that the citizens live to stabilize to enjoy that services provided by the government. With more taxation to citizens and more spending on the government's expenditure that citizens paid more, which could not be easily found.
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The other reason was unemployment in British. With high unemployment rates, the citizens needed to try to research the reasons why the government didn't employ people, yet they were subjected to pay the taxes ( Jordà and Taylor, 2016 ). In every country, the citizens pay taxes and should be given jobs by the serving government. The citizens feel out of place when they pay the charges, and the government fails to provide employment. This prompts researchers to try and offer the best solutions to the current issues, thus advising the government on how to approach employment issues ( Hansen, 2018 ).
Principal differences between the Keynesian and Classical approaches
There are principle keys which lead to the development of the different theory; these theories are different in some aspects one theory explains why the government is essentially controlling the economic and the other explains why the government should be left out with the issues dealing with the economy ( Hansen, 2018 ).
In the Keynesian, the government must be engaged in the management of the economy because different people have different shares. If the government does not monitor how the economy grows, people will take advantage of the prevailing circumstances, which might lead to inflation. The government should control foreign investors and ensure the price for locally manufactured goods and services is lower than that of foreign investors who will help stabilize the country's economy. The theory has one shortcoming because the government depends on the citizens' cash; thus, it's hard to manage what they don't own ( Bianchi and Ilut, 2017 ).
The classical theory advocates that the government should not be engaged in the economy because the cash they are not managing is not theirs; this is cash in the hands of the citizens. Citizens should be left to manage their money and spend it the way they want. This theory explains the shortcoming of Keynesian theory ( Bianchi and Ilut, 2017 ).; the government doesn't have money, and there is no way you can manage what you don't have; this is very hard, which the government cannot explain. However, the theory doesn't solve the role of government in the economy because the stability of the economy directly depends on how the government creates a better business environment for trading.
Challenges Addressed by Fiscal Policy
Employment
Lack of jobs is a problem that all states suffer from and should be addressed by the government to ensure that they have the best services. Citizens, after acquiring the necessary skills they need to be offered jobs to practice their skills. The fiscal policy focuses on solving unemployment; this helps the government know how to meet citizens' needs ( Rendahl, 2016 ).
A high rate of economic growth
The policy addresses the problem of economic growth. Through the theory, the government ensures that there is no inflation. The people focus on business that is beneficial to the government and themselves; thus, high rates of economic are experienced because the government monitors the spending and adjusts to maximize the available resources. Maximizing resource utilization ensures that nothing is taken to waste; thus, more profit will improve the economy ( Jordà and Taylor, 2016 ).
Stability of wages and product prices
Employees are discouraged when wages are not stable; they need to have a plan; the payments must be stable to help meet their needs. Employees should have some cash to save after meeting the demands of the wages. Small wages mean that the employees are struggling with life and other necessities; thus, working with such struggles discourages employees from bringing up their ideas; therefore, innovation and invention are destructed ( Jordà and Taylor, 2016 ). Citizens will opt to buy substitute products where the price is not higher, and they can benefit from the product.
Tools used in Implementing Fiscal Policy
The tools used to implement the fiscal policy include; spending, tax, and payments ( Jordà and Taylor, 2016 ).
Spending
Fiscal policy monitors how government spending has been and predicts how it will be in the future. This helps them make the necessary plans and adjustments to meet the demands of the citizens. The tool of spending highlights how the government and different within and without the government have been. It allows the people to adjust to changes geared towards helping the country and citizens acquire the best business and working environment.
Taxation
This helps the citizens, and other organizations know how much capital they are supposed to pay to the government.
Payment Transfer
This highlights the cash the government has borrowed or those they lend to borrowers. This helps the country to know the interest rates, thus make necessary plans on how to clear the debts.
Challenges Inherent Ensuring that Fiscal Policy is Effective
Different challenges ensure that the policy is practical where the size of the government is increasing. When the scale the government is increasing, the budget will also increase, thus more spending, which will lower the wages and increase the price of the goods and services that the citizens are enjoying ( Rendahl, 2016 ). Therefore, the government focuses on ensuring that the budget is maintained at a lower level, thus providing lower taxation to the citizens and investors.
Conclusion
In summary, the economy and the government cannot be separated. The government allows investors to make their investment within the country, and through this economy of the country is affected because the investors will pay taxes and offer job opportunities to the citizens who will, in turn, pay taxes ( Rendahl, 2016 ). The economy will be boosted, and citizens will enjoy lower fees because it will be distributed among many employed citizens. I agree with the Keynesian theory and support it because, without the government, there will be no business.
References
Bianchi, F., & Ilut, C. (2017). Monetary/fiscal policy mix and agents' beliefs. Review of Economic Dynamics , 26 , 113-139.
Hansen, A. H. (2018). Monetary theory and fiscal policy . Pickle Partners Publishing.
Jordà, Ò., & Taylor, A. M. (2016). The time for austerity: estimating the average treatment effect of fiscal policy. The Economic Journal , 126 (590), 219-255.
Rendahl, P. (2016). Fiscal policy in an unemployment crisis. The Review of Economic Studies , 83 (3), 1189-1224.
