one rule that has been proposed for fiscal policy is that th

one rule that has been proposed for fiscal policy is that the government buget should be balanced each year-no buget deficit. What position do you think each of the following groups of economists would take on this proposal?

a. new classical

b. keynesians

c. real business cycle theorists

Solution

Ans

Keynesians are opposite to balanced budget. They think Govt interference is necessary to raise Aggregate demand. New classical and real business cycle theorists are not at all in favour of Govt intervention.They believe economic agents are sophisticated forecasters. Thus they would support balanced budget like classicals.