The U.S. Free Enterprise Economy Essay

790 words - 3 pages

The United States is known for having a free-enterprise economy where a business can be conducted freely without government involved. In free-enterprise economies, goods and services are traded openly and are produced depending on the demand. People who support this type of economy believe it motivates businesses to make money and welcome new ideas. An important part of the economy is to have full employment and low inflation.
Keynesianism and monetarism are both ways to stabilize the economy and promote growth when need. In keynesianism, government uses fiscal policy which is a list of policies that government spending and taxing can be used to improve the performance of an economy. The government produces stabilization by taxing and spending yearly plans. Taxing can occur when inflation is high and lowering taxes tends to occur during a high percentage of unemployment. By lowering taxes, it increases disposable income or the party of income that goes to financial responsibilities. When people have more money, they are able to spend more which in return goes into jump starting the economy. Monetary Policy is another policy used in Keynesianism which is a list of protocol designed to regulate the economy by setting the amount of money that is in circulation and controlled interest levels. The Federal Reserve system also known as the central banking system in the U.S. which holds control of this policy. Monetary policy has three tools used my the Federal Reserve to enforce this policy. Reserve Requirement is the first tool that determines the lowest amount of money a bank must possess and is not able to lend out. The second way to enforce monetary policy is by using the discount rate or the interest rank a bank will charge. The final is the open-market operations, this is the purchase of securities or sale of bonds that are certificate like finance policies in government. This policy is results in faster results to speed up the economy for the short term. Fiscal Policy is later used to develop a plan of yearly actions and is a long term way to stabilize the economy. The next idea to stabilize the economy is a theory called monetarism which is the belief that if government did not interfere with the market economy that employment would be high and inflation low. Followers believe the government is the reason of downturns...

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