What are the reasons of fiscal policy not being effective in an economy according to classical economists?
The classical theory focuses on free markets and that the markets will regulate themselves when they are left alone. So, the classical theory says that the markets will be at equilibrium on its own i.e. without interference by the government or the people. Classical theory's main focus is that people are free to pursue their self-interest in the free market and will be open to all the competition. Ultimately, when individuals work and as they get paid they will use their wages to buy the goods in the market. So, laborers will create their own demand for the products and services they want to purchase.
While Keynesian's theory works on the rigidity of prices and that price stability should be maintained by the government. The Keynesian theory says that the government should influence individuals and corporations to maintain prices within specified ranges.
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