Current events in the economy - Essay Example

Fiscal policy Employment can be considered as one of the most notable indicator of the economy. According to Keynesian theory the absence of proper production and demand causes of unemployment greatly use the fiscal policies to increase the aggregate demand to increase the level of employment hence improve the economy’s production. The increase in the employment level consequently increases production level. Fiscal policies can increase employment level if the government reduces the expenditure or/and reduces tax.

The aggregate demand will increase hence increase in employment (Gray, 2004). According to the article in the Journal by Froyen, (2009), the other school of economics that deals with monetarist, real business, and classical cycles believe that fiscal policies cannot increase production or employment levels. Fiscal policy is considered as the planning of government expenditure and revenue thus; tax revenue and government expenditure can be determined as a percentage of GDP. In addition, human capital can be determined as the expenditure on human development as a percentage of GDP.

Since the governments do not rely on one source of revenue, fluctuations in the level of GDP do not have an impact on employment and production (Froyen, 2009). Monetary, real business and classical cycles’ theories say that fiscal policies cannot increase the level of employment, but rather influenced by other supply side determinants such as deregulation, technology development and infrastructure. If fiscal policies are considered alone they have the potentiality of affecting employment in all production sectors.

, It can be concluded that fiscal policies have or not have impacts on employment in different production sectors based on the theory used to determine the impact (Gray, 2004). ReferencesFroyen, R. (2009). Macroeconomics: Theories and Policies. Journal of Econimics , 34-56.Gray, C. (2004). Fiscal Policy and Monetary Policies . Washington, D.C.: World Bank.