Essay: Fiscal Policy

Sample Essay

Although as effective and precise as it may sound, Fiscal Policy often comes under severe criticism from several classical and neoclassical economists. It is often said that the fiscal policy does not have any direct effect as a stimulus on the economy of the country.

This perspective is commonly referred to as the Treasury perspective (Badhwar, 2008). It entails that when a country is faced with a budget deficit, funds should be brought from foreign sources instead of local sources. Otherwise, a severe increase in the interest rate in the market will follow and is led by a higher demand for credit in the market which eventually transpires into a decrease in aggregate demand; a crowding out of sorts.

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