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| Home About the TEDC The TEDC at Work Commercial Areas Doing Business in Teaneck Real Estate Community Resources In the News Maps & Directions Terms / Conditions / Policies Contact Us | Monetary and fiscal policy. Before leaving the discussion of classical macroeconomic model, it makes sense to briefly touch upon the question of the place designated by the school, the monetary and financial policies of the state. The classical economists were convinced that the competitive economic system has automatic mechanisms capable of ensuring full employment and equilibrium in the goods market. Therefore, they argued that the state should reduce the problem to the functioning of a competitive market through the elimination of stiffness and tension, guarantee the stability of the purchasing power of money (or, equivalently, the general price level) and to perform certain services that are vital to society as a whole. As for the monetary policy of the state, she was not given any special role in determining the level of income and employment, since, according to the concept of the classics; the monetary sector can not have any effect on real economic value of the system. And the same reasons, respectively, monetary policy could not in any way affect the distribution of income between consumption and investment. Increase or decrease in circulation in the mass of money if it was carried out by public authorities, could cause a change in the general price level. The state, using the tools of monetary policy, could intervene only in the level of inflexibility of money wages and prices, and the stability of the interest rate in order to accelerate the elimination of unemployment in the former case, and to restore equilibrium in the commodity market in the second. Fiscal policy, as well as monetary, in the opinion of the classics, could not help to establish the equilibrium level of income and employment, except the hard market in which, however, she was reduced to a kind of monetary policy. Indeed, since the competitive mechanism in itself guarantee full utilization of productive resources, the scope of public finance, which was assigned the task of providing basic public services, carried out, in essence, the mission of the reallocation of resources between private and public forms of Finally, the general criterion of economic behavior of the state was formulated in the so-called principle of neutrality with respect to the economic activities of private agents. According to this principle, the state should be to minimize the adverse economic consequences of its own activities and refrain from influencing the position of economic entities operating in a competitive environment. In connection with the installation of the state budget had to constantly focus on equality of income and expenditure, and deficit in the budget allowed only for extraordinary economic and financial circumstances, such as war. |
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