Fiscal And Monetary Policy Essay

1128 words - 5 pages

It is the role of the federal government therefore to keep inflation low as well as keeping unemployment rate down. Philips curve gives the probability of having both a low unemployment and inflation hence providing the stakeholders in the sector in the short run a tradeoff between unemployment and inflation (Mark & Asmaa, 2012). Unemployment can be kept under control by the government while at the same time allowing inflation OR to keep controlling prices and not controlling unemployment. This compromise between the two is shown as a contra-relation between inflation and unemployment. In the long run, the government can only afford to play around with inflation while having zero control ...view middle of the document...

Through the expansionary fiscal policies the unemployment rate will drop below the natural rate in the short run but in the long run it will be restored back to its original level. The other tool is to use the exchange rate to avoid the inflations but this one is only possible with an open economy. It has been found that countries with a currency value relatively higher in comparison with other countries have less chances of being affected by inflationary pressures. A check on their exports due to their high pricing could be the most likely reason. This will behave as a check on the purchasing ability of the people and therefore controlling inflationary pressure indirectly. However it is less likely to be used because of its other adverse consequences.
PART 2
EXPANSIONARY POLICY AND FISCAL DEFICIT
part one is categorical that in order to raise the economy and GDP levels the president and federal government will have to apply both monetary and fiscal policy that are complement of each other. A fall in the FED rate increased government spending, improved welfare spending, a drop in both FED and tax rate all works together to overturn balance between government spending and its
revenues from taxes . This tool is a prototype of Keynesian findings, which states that the
economy can improve if the effective demand is improved. A rise in government spending which is a part of aggregate demand together with lower taxes is expected to raise aggregate demand which in turn raise GDP.
The theory of Keynes argue from multiplier perspective for the change in G/ T to affect GDp. Increase in GDP has a multiplied effect on GDP since the rise in G < rise in GDP. Similar to that a unit drop in tax rates will cause GDP to go up by the amount shown by the tax multiplier (= MPC/ MPS > 1). A fiscal deficit is therefore often a fall out of an expansionary policy followed in a recession to restore the economy to natural levels. The ratio of debt to GDP goes up as debt also goes up while GDP drops, as per Reddy (2012) Public debt in advanced.

EFFECTS OF FISCAL DEBT
A fiscal debt is a situation whereby the government is spending more than it is generating from the revenues. This deficit can be met by either government printing more money or from borrowing. The first one will increase the...

Find Another Essay On Fiscal and Monetary Policy

Monetary Policy vs. Fiscal Policy Essay

1991 words - 8 pages Monetary Policy vs. Fiscal PolicyPeople always struggled with an idea of prosperity and success, whether it was a personal goal or whether it was something major - like wealth of a country. Nowadays, we are studying a science, which is really significant and valuable - Economics. Economics is a tool for achieving those goals, knowledge that people can use and imply in real life, and at the present time probably undividable part of governments

Fiscal Policy, Monetary Policy, and a Healthy Gross Domestic Product

1773 words - 7 pages the country. What the GDP represents has a hefty impact on nearly everyone within our economy. As an example, when the economy is healthy, you will usually see wage increases and low unemployment as businesses demand labor to meet the increasing economy. The government has two types of economic policies used to control and maintain a healthy economy, fiscal policy and monetary policy. When economic growth is healthy it will have a positive on

Monetary and Fiscal policy and The Great Recession

801 words - 4 pages The goal of monetary and fiscal policy is to create and maintain a growing stable economy. While both policies deal with manipulating the economy, which entity uses them and the tools they use are what differentiate them from each other. When it comes to monetary and fiscal policy, the details and timing matter because they can save a country, or they can destroy a country. Monetary policy is about controlling the supply of money in attempts

Fiscal and Monetary Policy Before During and After the “Great Recession” of 2008

874 words - 4 pages One of the most interesting facets of The Great Recession of 2008 is that it didn’t really begin in 2008. The fiscal and monetary policy that prompted what we know now as the Great Recession of 2008 really began in 2006 and 2007. What was happening then and why did it take so long for the nation to feel the recession? The answers to those questions explain a great deal about how the Federal Reserve Bank operates and how the different ideologies

Discuss the methods that the government uses to communicate its monetary and fiscal policy and the barriers it may face

1046 words - 5 pages within the business. External communication within an organisation is very important because they are dealing with a people from outside of the company. For external communication, the Government usually uses the media, news channels, campaigning, posters or leaflets to communicate its monetary and fiscal policy to get the message across. This is the one way communication where the sender never can be sure whether the message was understood and

UK Monetary and Fiscal Policies

2676 words - 11 pages Since the global financial crisis of 2008, the UK government has been implementing various policies to combat the recession and stimulate economic growth. This essay will look at how effective the fiscal and monetary policies used since the crisis are in achieving the four-macro economic objectives. In addition, I will provide my input on the best way the UK government can carry out these policies. Monetary policy affects the aggregate demand

immigration and fiscal policy

903 words - 4 pages The article I chose to use to write about fiscal policy was so an excerpt from the New York Times, which was about immigration. With immigration being such a hot topic today, many questions have been going around, like should we do something about this or how is it affecting our economy? Immigration is defined as coming from a foreign country to live. The article brings forth many different aspects as to how immigration reform is a very helpful

schwarzenegger and fiscal policy

1803 words - 7 pages fiscal crisis has been in the making for nearly a quarter of a century, going back to 1978 with the passage of Proposition 13, a ballot initiative supported by right-wing Republicans that severely limited the levying of property taxes. The main beneficiaries of the measure were not struggling homeowners but big corporations and the wealthy, and the measure led to a huge attack on social spending through the slashing of state revenues. The collapse of

Sequestration and Monetary Policy

2566 words - 10 pages profits decreases, mortgage foreclosures increase, and bankruptcies increases. This is very similar to the government shutdown except sequestration is a long term fiscal policy. The Federal Reserve is using an expansionary monetary supply to stimulate the economy. To increase the money supply, the Fed has lowered the Federal Fund Rate, aggressively purchased bonds, and printed large amounts of liquidity. This caused increases in liquid assesses for

Monetary Theory and Policy

2230 words - 9 pages fiscal responsibilities. The issue of the fiscal-monetary distinction may also arise in the case of the nonconventional policy known as quantitative easing, in which the central bank provides additional support for the economy and the financial system by expanding the monetary base, for example, through the purchase of long-term securities. Rarely employed outside of Japan before the crisis, central banks in a number of advanced economies have

Money and Monetary Policy

1587 words - 6 pages Monetary policy and its effects on macroeconomic factors such as GDP, unemployment, inflation, and interest rates.I need help understanding the following MBA macroeconomic problems:A) What are the tools used by the Federal Reserve to control the money supply?The term "monetary policy" refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote

Similar Essays

Monetary And Fiscal Policy Essay

1413 words - 6 pages Monetary and fiscal policy and their applications to the third world countries with a huge informal sector This essay seeks to explain what are monetary and fiscal policy and their roles and contribution to the economy. This includes the role of the government in regulating the economical performance of a country. It also explains the different features and tools of monetary and fiscal policy and their performance when applied to the third

Fiscal And Monetary Policy Essay

1223 words - 5 pages The difference between fiscal and monetary policy lies within the different tools wield, and aspects of the economy they influence. Fiscal policy generally deals with different sorts of taxes to manage earnings and spending in the population, and how the government benefits from these interactions. Monetary policy, on the other hand, affects the base value and amount of money in circulation directly, as opposed to simply leveling off amounts

Fiscal And Monetary Policy Essay

798 words - 4 pages equipment necessary to run those applications. This action alone is reported to have reduced operating costs by $27 million over five years. Furthermore, websites such as USASpending.gov have been created, enabling taxpayers to review spending obligations by Federal agencies (Cutting). The Board of Governors of the Federal Reserve established its monetary policy of keeping interest rates at or near zero percent after the financial crisis

Fiscal And Monetary Policy And Economic Fluctuations

990 words - 4 pages approximately 10 percent loss in the price of the bond. Nonetheless, the Federal Reserve has kept the interest rate on long-term bonds to an unexpected low through its unconventional monetary policy. This implies that the main reason for the current interest rates is the unconventional monetary policy i.e. quantitative easing regarding the purchase of huge amounts of Treasury bonds and other long-term assets. On the contrary, the unemployment rate has