Fiscal policy is the policy of the government regarding the change in government expenditure and taxation. The main objective of the fiscal policy is full employment, economic growth, price stability, the balance of payment, etc. In the Keynesian system when government expenditure increases there will be the immediate effect of change in investment function i.e. when government expenditure increases investment increases the real output also increases through the multiplier process but the effect of fiscal policy in the economy depends on the conditions of employment in the economy. Therefore, for the explanation of effect of fiscal policy in the Keynesian system, we have to divide the economy with some unemployment and full employment. i. Effect of fiscal policy in the Keynesian system with some unemployment: When there is unemployment in the economy, a rise in government expenditure reduces the investment fun to shift upward to the right...
If there is a will there is the way...