Fiscal And The New Classical Macro Models Analysis

The effectiveness of fiscal police to stimulate economic activities has been a polemic topic for several years. This controversy exists basically due to differences between the Keynesian and the New Classical macro models analysis. However, what it is clear is that the government has the tools to adjust to positive or negative responses of economic fluctuations. Fiscal and monetary policies must be timely adjusted to overpass economic phasedowns using government spending or taxes. Consequently, good decisions have to be done based on different factors that influence fiscal and monetary policies. The impact of fiscal policies in the government spending and taxes in the last years have shown several issues. For example, positive shocks to net taxes have brought private consumption down, and the multiplier remains stable throughout (Pereira and Lopez, 158). Moreover, expenditures have presented a New Classical model with negative expenditure multiplier in the past decades. What it means is that fiscal policies have presented a time variation in the countercyclical approach. Expenditures sometimes do not respond accordantly to a stimulation period. However, what we must take into consideration is that not only one or two parameters could be a determinant to adjust monetary and fiscal policies. Shocks in taxes to adjust the Federal Budget have presented a wide volatility compared to spending in many macroeconomic models (Romer and Romer 2008). That’s why sometimes tax adjustmentsShow MoreRelatedPolicy Review And The Lucas Criticisms Essay919 Words   |  4 Pagesaddition, new classical macroeconomics further argues that political measures to improve the total output and reduce unemployment have to find ways in the supply part. Therefore, policies work only when they inspire the microeconomic units to provide more products and labors (Grabel, 2000). Under this background, the Luca critique drew attention from the world. 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