Briefly explain the potential benefits of using monetary policy rather than fiscal policy to stabilise the economy (200 word limit).
The aims of fiscal and monetary policy are similar. They could both be used to:
The principal aim of fiscal and monetary policy is to reduce cyclical fluctuations in the economic cycle. In recent years, governments have often relied on monetary policy to target low inflation. However, in recessions, there are strong arguments for also using fiscal policy to achieve economic recovery.
In a recession, monetary policy will involve cutting interest rates to try and stimulate spending and investment. It should also weaken the exchange rate which will help exports.
In an expansionary monetary policy, where banks are lowering interest rates on loans and mortgages, more business owners would be encouraged to expand their ventures, as they would have more available funds to borrow with affordable interest rates. The Federal Reserve can make use of a monetary policy to create or print more money, allowing them to purchase government bonds from banks and resulting to increased monetary base and cash reserves in banks.
As monetary policy would lower interest rates, it would also mean lower payments home owners would be required for the mortgage of their houses, leaving homeowners more money to spend on other important things.
One of the biggest perks of monetary policy is that it can help promote stable prices, which are very helpful in ensuring inflation rates will stay low throughout the country and even the world.
A monetary policy would oblige policymakers to make announcements that are believable to consumers and business owners in terms of the type of policy to be expected in the future.
Since the central bank can operate separately from the government, this will allow them to make the best decisions based upon how the economy is performing doing at a certain point in time. Also, the banks would operate based on hard facts and data, rather than the wants and needs of certain individuals. Even the Federal Reserve can operate without being exposed to political influences.
Monetary policy is most widely used for ‘fine-tuning’ the economy. Making minor changes to interest rates is the easiest way to influence the economic cycle. Deflationary fiscal policy is highly politically unpopular.However, in some circumstances, monetary policy has its limitations. In serious recessions, a combination of two policies may be needed.
However, in some circumstances, monetary policy has its limitations. In serious recessions, a combination of the two policies may be needed.
Briefly explain the potential benefits of using monetary policy rather than fiscal policy to stabilise the economy (200 word limit).
In the Keynesian model, the difference between using monetary and fiscal policy to eliminate a recession is that________. an expansionary fiscal policy will leave the economy with a lower real interest rate than an expansionary monetary policy. fiscal policy will eliminate a recession quicker than monetary policy will. monetary policy will eliminate a recession quicker than fiscal policy will. an expansionary monetary policy will leave the economy with a lower real interest rate than an expansionary fiscal policy.
Explain the most appropriate monetary and fiscal policy for our economy right now. Please explain your reasoning using economic data that our economy is experiencing from the Bureau of Labor Statistics (www.bls.gov).
Imagine that the trade war between the US and China escalates, and spreads to other nations, including Australia. Discuss the potential costs and benefits for the Australian economy (200 word limit).
Use of discretionary policy to stabilize the economy Should policymakers use monetary policy, fiscal policy, or both in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy and the pros and cons of using these tools to lessen economic fluctuations. The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve (LRAS) For the economy in May 2020. According to the...
WEEK 6: MONETARY POLICY AND FISCAL POLICY A healthy economy typically has low rates of unemployment and steady prices. Low rates of unemployment means that the economy is operating at its full potential. To ensure the economy continues to operate at potential GDP (full capacity where all savings are invested in production functions, and where all those who wish to work can find a job, and all other factors of production are fully utilized in the production function), governments use...
Explain that fiscal policy is less effective than monetary policy in a situation when investment is very interest elastic and money demand is very interest inelastic.
7. Use of discretionary policy to stabilize the economy Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, and the pros and cons of using these tools to combat economic fluctuations. The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve (LRAS) for the U.S. economy in April 2020. Suppose the government...
monetary policies are more flexible and easier to deploy than fiscal policy . monetary policy also has a more immediate impact and disrupt less the existing patterns of government expeniture and investment . Question in five double space pages long , to what extent do these policies affect the USA political economy and investment of the nation?
Explain how fiscal policy (government spending and taxes) and monetary policy (determining interest rates) affect the level of output and employment in the economy according to Keynesian theory. What fiscal and monetary policies should the government follow to pull the economy out of a recession?
Briefly explain how fiscal policy affected the aggregate demand and aggregate supply in economy by using one of the productive sector in Malaysia as an example.