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-If personal income taxes ware increased then private consumption expenditure would
decline. If taxes on corporate profits were raised then net investment spending would
fall.
-Thus government spending would increase and private spending would decrease, with
no effect on national income and employment.
-According to the classical economists the net effect of fiscal policy was that it had
no effect on the level of national income.
-As a result the classical economists felt that the government should balance the
budget, and was not necessary as an active policy participant. The economy
adjusted itself.
-The classical economists believed that economic problems such as unemployment or
inflation were temporary phenomena, and that self-correcting forces would always
counteract this short-run or temporary occurrence. Should the economy fail to adjust
quickly enough to suit society, monetary policy would be implementing to speed the
return to economic health.
sharon kalunda answered the question on April 11, 2019 at 11:47
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