The keynesian system: fiscal and monetary policy guidelines

Abstract In this article we shall try to establish the guidelines of the Keynesian fiscal and monetary policies. In order to better understand the Keynesian macroeconomic system it is necessary to go briefly over the Classical economics in the pre-Keynesian period and the fiscal and monetary policies based on those analyses. While principally dwelling on the Keynesian macroeconomic system and the fiscal and monetary policies based on this system, we think we have some grounds about the significance of the subject. Firstly, the Keynesian analyses keep holding the balance of power in the theoretical field even in the post-Keynes era, and constitute the foundation of the macroeconomic textbooks. Secondly, despite the economic conditions of these days which have gone through many changes, and the emergence of anti-Keynesian views, the governments and monetary authorities (Central Banks) both in Europe and in the States, still implement – cautiously– fiscal and monetary policies in accordance with the Keynesian principles. In effect during Reagan era in the States and M. Thatcher in Britain, policies under the influence of Monetarism had been applied, however, since inflation was not prevented and there was an increase in unemployment, these policies were forsaken and moderate Keynesian policies were implemented low-key. But criticisms coming from both Monetarists and particularly New Classical economists forced fundamental methodological and assumptive changes in Keynesianism since the ‘80s; the school that emerged in the USA is called the New Keynesian Economics, in England the Post-Keynesian Economics.