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 to create stable growth in a country. Monetary policy is usually classified one of two ways, expansionary policy and contractionary policy. The goal of expansionary policy is increasing the total supply of money rapidly. The goal of contractionary ...view middle of the document...

S banks’ lending at, and this will dictate how much money is coming in and going out of the banks. They can also control the money supply through open market operations. This is when the fed buys debt or treasury from the bank which increases the money the bank has to lend out. The Fed can also use a discount window; this is when the banks borrow from the reserve. By controlling the rates that banks borrow money from the reserve they can control how much the banks are borrowing and at what interest rates, thus how much the banks are lending. The last tool the Fed uses to influence the economy using monetary policy is reserve requirements. This is when the Fed sets a requirement of how much money a bank must have in the vault. If this requirement is lowered banks can lend out more money, if it is raised the banks can’t lend out as much money. This keeps the money out of circulation and puts a stop on the money supply.
Fiscal policy is how the government influences the economy by using taxation and spending. There are three main types of fiscal policy. The first is neutral fiscal policy which is used when the economy has reached the equilibrium. This is when everything balances out spending is equal to taxation and the budget is balanced. Expansionary...

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