State may affect the macro-economy through two main mechanisms, they are fiscal and monetary policies.So, which one prevails depends, among other things, on the power of the social order.And, as the history of the world, only those countries which had achieved a reasonable balance between these two mechanisms, quite reached the status of long-term economic stability in different historical periods.Fiscal and monetary policy of the state in a variety of macroeconomic models is sometimes completely opposite meaning for the development of the state.
For example, considering the classical model, we see that its creators assign a passive role of macroeconomic policy, because the economy is generally considered as the internal stability of a system that, in the event of any upheaval, itself leads to equilibrium.
tool that directly produce self-regulation of the economy are flexible prices and wages, interest rates on loans and deposits.The intervention of the state, according to the founders of this model can only destabilize the situation in the country, and for this reason should be minimized.And, therefore, monetary policy is much higher than their estimated tax, as fiscal measures have the effect of crowding out, and can help increase the level of inflation in the country, which completely eliminates its positive effect.
classical model also suggests that monetary policy has a direct impact on overall demand and, consequently, on the gross domestic product.
in neoclassical economic concepts, such as the theory of rational expectations, and their founders are considering wages and prices are completely flexible quantities.And, therefore, the market may support the economy in a stable condition even without any intervention by the central bank and the government.Policies aimed at stabilization of the economy can have effect only in the case when the central bank and the government have more information about the shocks of aggregate supply and demand than ordinary agents of the economy.
In the Keynesian model, the core is the same equation that determines the total cost, which in turn determines the size of the nominal gross national product.Also, this model considers the fiscal policy of the state as a means of having the greatest effect for stabilizing the macroeconomy as a whole, since government spending directly affect the size of the aggregate demand and have a great multiplicative effect on the cost of end users.However taxes act effectively as the size of consumption and investment.
Keynesian model considers a method of influence on the macroeconomy, as the monetary policy of the state secondary to the fiscal policy.This opinion was based on the fact that changes in money supply do not directly affect the domestic national product and the first change gear investment costs that respond to the dynamics of changes in interest rates, and has increased its investment has beneficial effects on the growth of gross national product.
This mechanism of monetary policy the founders of this model is considered too complex to effectively influence the macroeconomic fundamentals of the state and functioning of the market.
