The government intervenes in the economy in the following three ways:
a. Fiscal intervention: The fiscal intervention in the economy involves changing government spending or expenditure and also changing the rate of taxes in the economy. Government follows expansionary monetary policy involving increasing government expenditure and reducing taxes during the time of recession and government follows contractionary fiscal policy involving reducing expenditure and increasing taxes during the time of inflation.
b. Monetary intervention: This involves change in the money supply by the Central Bank of the country. Money supply is increased or expansionary monetary policy leading to fall in the rate of interest is followed during the time of recession and money supply is reduced or contractionary monetary policy leading to rise in the rate of interest is followed during the time of inflation.
c. Supply Side efforts- When government increases investment in technological advancement, human capital formation, research and development, reduce taxes on production, then the government is making supply side efforts to increase the level of production taking place in the economy.
Looking at the criticism of government involvement from the Classical perspective, the supply side efforts from the government is the best policy. This is because both fiscal and monetary intervention involves demand side changes in the economy , however, Classical believed in supply side economics and always suggested measured to increase aggregate supply in the economy. Thus, supply side efforts makes most sense from Classical perspective.
I am curious as to what you mean when you say that supply-side efforts make the most sense from the classical perspective. It is my understanding that classical economists denounce mercantilism and government involvement, including supply-side efforts. Adam Smith, in a way, discusses the negative effects of supply-side economics--or the trickle-down effect--when he writes about the impoverishment of the working class sheep shearers and weavers.?
The government intervenes in the economy in the following three ways:
a. Fiscal intervention: The fiscal intervention in the economy involves changing government spending or expenditure and also changing the rate of taxes in the economy. Government follows expansionary monetary policy involving increasing government expenditure and reducing taxes during the time of recession and government follows contractionary fiscal policy involving reducing expenditure and increasing taxes during the time of inflation.
b. Monetary intervention: This involves change in the money supply by the Central Bank of the country. Money supply is increased or expansionary monetary policy leading to fall in the rate of interest is followed during the time of recession and money supply is reduced or contractionary monetary policy leading to rise in the rate of interest is followed during the time of inflation.
c. Supply Side efforts- When government increases investment in technological advancement, human capital formation, research and development, reduce taxes on production, then the government is making supply side efforts to increase the level of production taking place in the economy.
Looking at the criticism of government involvement from the Classical perspective, the supply side efforts from the government is the best policy. This is because both fiscal and monetary intervention involves demand side changes in the economy , however, Classical believed in supply side economics and always suggested measured to increase aggregate supply in the economy. Thus, supply side efforts makes most sense from Classical perspective.
I am curious as to what you mean when you say that supply-side efforts make the most sense from the classical perspective. It is my understanding that classical economists denounce mercantilism and government involvement, including supply-side efforts. Adam Smith, in a way, discusses the negative effects of supply-side economics--or the trickle-down effect--when he writes about the impoverishment of the working class sheep shearers and weavers.?
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