Macroeconomics, Economic theories, Public finance

The government uses various policies to ensure the economy is running properly. The Keynesian economists advocate the use of fiscal policy to ensure the economy achieves desired output and employment. Other economists advocate for use of monetary policy due to some problems with fiscal policy such as the crowding out effect. Britain is one of the countries that make use of fiscal policy to run the economy. This policy is used to stimulate aggregate demand especially when the economy is at a recession. However, fiscal policy is more effective in the short-run as in the long-run there is stabilizing economic forces that ensure the output moves back to its potential (Taylor, 2009). The fiscal policy involves increasing government spending or reducing taxes to stimulate aggregate demand or