New thoughts on macroeconomics. Fiscal responsibilities and measures?

Governments have the right to spend taxpayers’ money on certain items and services, which can enhance or hurt the macroeconomic environment. The macroeconomy is influenced by both internal and external factors, and governments have historically used stimulus packages to address crises. Examples include the Great Depression (1929-1939) and the Global Financial Crisis (GFC) of 2007–2009. These crises were frequently caused by a lack of demand for goods and services, which triggered economic downturns. However, in today's world, affected by technology breakthroughs and shifting consumer tastes, governments have a difficulty in determining macroeconomic expenditure levels. The Keynes school of thought looks at government expenditure through fiscal processes, but governments must solve the core multiplier problem. The Austrian school of thinking can help governments focus on demand objectives like $80 billion in GDP. Governments may limit spending and keep inflation under control by calculating the multiplier, taking opportunity costs into account, and viewing the market as dynamic.

In his book "The General Theory of Employment, Interest, and Money" (1936), British economist John Maynard Keynes codified the concept of the multiplier. Keynes used a lack of aggregate demand during the Great Depression to argue that government spending and fiscal stimulus may have a "multiplier effect." Any sort of government spending may result in cycles of economic growth and increased employment, raising GDP to levels larger than the cost. The equation of the aggregate demand and consumption model is Y=C+I+G. Y is the aggregate demand, C is the consumer demand, I is the investment demand, and G is the government demand. Keynes did also introduce C=mY, where m is the marginal propensity to consume, where it can be from 0 to 1. Assume a $100 million government building project incurs $50 million in pure labour expenses. The workers spend the $50 million, minus the average saving rate, at various firms. These firms now have more money to recruit additional staff and produce more items, resulting in another cycle of spending. One dollar of government expenditure will result in more than one dollar of economic growth. This principle lay at the heart of the New Deal.

This could create an inflationary problem such as inflationary expectations and demand-pull inflation. Demand-pull Inflation happens when total demand for goods and services (referred to as 'aggregate demand') exceeds the amount of goods and services (referred to as 'aggregate supply') that can be supplied sustainably. Excess demand boosts prices for a wide range of goods and services, resulting in an increase in inflation—in other words, it 'pulls' inflation higher. The factors that result in an increase in inflation are consumer, company, or government expenditure, as well as increased net exports. As a result, demand for products and services will rise compared to supply, allowing companies to raise prices (as well as margins, which are their cost markups). Moreover, inflationary expectations are consumers' anticipation of future price increases that may impact economic activity and actual inflation rates. Businesses and employees can raise prices if they foresee growing inflation and take necessary action, while employees may demand higher compensation to compensate for expected loss of purchasing power. This 'inflation psychology' can increase real inflation rates, making inflation expectations self-fulfilling.

A solution to the simple multiplier problem is using the Austrian School of Economics. Here are some solutions for when governments ever decide on stimulus packages. Prices represent an overview of market exchange rates. The pricing system transmits vital information to market participants, allowing them to optimise their mutual benefits from trade. In Hayek's well-known example, when customers see that the price of tin has risen, they don't care whether the cause was an increase in demand or a decrease in supply. In any event, the surge in tin prices has prompted them to restrict their use of the metal. Market prices move rapidly as underlying conditions change, prompting customers to act fast. Opportunity cost by Friedrich von Wieser’s Theory of Social Economy discusses the cost of anything was decided by demand rather than supply. Specifically, the customer's cost of acquiring a certain product equals the cost of purchasing the next-best item that the consumer needs. For example, going to the movies the night before an exam may cost you two hours of study time. Hayek's model of a capital-using economy simplifies comprehension by showing production processes as a set of input and output stages. This temporal pattern is crucial for aligning industrial activities with customer preferences. The pattern of resource allocation may be changed in systematic ways, affecting growth rates and causing booms and busts. The intertemporal capital structure, represented by a triangle, illustrates the market's interest rate and profit potential.