Question

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 fiscal and monetary policies to lower unemployment rates and to control prices (inflation).

For your initial post, answer one of the following questions.

  1. Discuss the primary goals of expansionary and contractionary fiscal policies and their effects on unemployment rates, inflation rates, interest rates, private investment, and GDP.
  2. Discuss the goals of expansionary and contractionary monetary policies used by the Federal Reserve Bank and the approaches (called monetary policy tools) used to achieve each policy. Also, discuss the effect of each policy on GDP, price level, private investment (investment in capital acquisition by firms and housing by households), and net trade.
  3. In your opinion, which policy is more effective—monetary policy or fiscal policy? Why?
0 0
Add a comment Improve this question Transcribed image text
Answer #1

Purpose of expansionary fiscal policy

This type of fiscal policy helps to the economic level to grow in a healthy way. The main aim of this fiscal policy is to help the consumers of a particular country to pay less amount of taxes.

Purpose of Contractionary  fiscal policy is to decrease the expansion of monetary rate by the central bank of the country.

Expansionary fiscal policy can increase the rate of inflation in the country because their is a higher demand in the economy. Since the main objective of this fiscal policy is to borrow from the government of the country. Therefore, the interest rate increases.

In case of contractionary fiscal policy the interest rate falls. The rate of unemployment can increase when this type of fiscal policy is used but in a very small level. Since in this case borrowing from government decreases therefore private investments generally increases.

Goal of Contractionary Fiscal policy.

The main goal of the central bank using this policy is to decrease the rate of inflation by decreasing the number of active money which is getting circulated in the market. Thus, decrease in the inflation rate can decrease the interest rate and unemployment also gets reduced to a certain level.

Goal of expansionary Fiscal policy

The main goal of the central bank using this policy is to decrease the interest rate and it also aims at increasing more amount of money in the system. This helps in the increase in GDP of the country.

Both monetary policies as well as fiscal policies consist of their own pros and cons. According to me monetary policy is more effective. Monetary policy can be implemented by the central bank in fair as well as easy way. Since Central bank is independent and there is no political influence, therefore, actions against any unpopular monetary policy can be undertaken even during the time of the elections because there is no political pressure or repercussions. When there is increase in the supply of money the currency gets weaken and thus it can help in the increase in exports from the country.

Add a comment
Know the answer?
Add Answer to:
WEEK 6: MONETARY POLICY AND FISCAL POLICY A healthy economy typically has low rates of unemployment...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • During a recession, economists traditionally focus on monetary and fiscal policies to bolster the economy. a. Use t...

    During a recession, economists traditionally focus on monetary and fiscal policies to bolster the economy. a. Use the aggregate demand - aggregate supply (AD-AS) model in Panel A to show the effect of a tax cut, in the form of a tax rebate, given to each taxpayer. If inflation is high during a recession, some economists advocate cuts on marginal tax rates, to help avoid additional inflation. b. Use the AD-AS model in Panel B to show the effect of...

  • Use the following to answer questions 6-7: Figure: Determining Fiscal Policy LRAS SRAS AD Aggregate Price Level (P) Agg...

    Use the following to answer questions 6-7: Figure: Determining Fiscal Policy LRAS SRAS AD Aggregate Price Level (P) Aggregate Output (Q) 6. (Figure: Determining Fiscal Policy) Expansionary fiscal policies could: A) move the economy to full employment. B) move the economy away from full employment. C) lead to a lower price level. D) lead to a lower price level and lower unemployment. 7. (Figure: Determining Fiscal Policy) The best discretionary fiscal policy option is: A) expansionary fiscal policy that leads...

  • For macroeconomic policy (either monetary or fiscal policy), what is more important - achieving low unemployment...

    For macroeconomic policy (either monetary or fiscal policy), what is more important - achieving low unemployment rates or low inflation rate? Explain.

  • Econ HW, please help! UTION # FISCAL POLICY NAME the mix of government spending and taxing...

    Econ HW, please help! UTION # FISCAL POLICY NAME the mix of government spending and taxing in order to balance the Fiscal policy is best defined as: uncontrolled government spending, altering the mix of govern budget every fiscal year. changes in govern macroeconomic goals. vernment spending and taxing for the purpose of achieving certain minimizing government expenditures over the fiscal year. , while reases in government spending and lower taxes represent decreases in government spending and higher taxe contractionary fiscal...

  • Which of the following policy according to Keynes is best suited to stimulate an economy that...

    Which of the following policy according to Keynes is best suited to stimulate an economy that is experiencing a downturn in the business cycle? (a)A contractionary monetary policy (b)A contractionary fiscal policy (c)An expansionary fiscal policy (d)An expansionary monetary policy The vertical portion of the aggregate supply curve or AS curve in Figure#1is: (a)The long run supply curve (b)The point of full employment GDP (c)The point of full capacity utilization (d)All of the above Figure#1 AS Price Level AD5 PO...

  • 2001, the Fed pursued an expansionary monetary policy and reduced interest rates. At the same time, President Georg...

    2001, the Fed pursued an expansionary monetary policy and reduced interest rates. At the same time, President George W. Bush pushed through legislation that lowered Income taxes. "he accompanying IS-LM diagram describes the situation prior to any such policy changes. Initially the economy is at equilibrium point A. .) Using the line drawing tool, draw a new LM curve to illustrate the effect of an expansionary monetary policy. Property abel your curve. 2.) Using the 3-point curve drawing tool, draw...

  • According to adaptive expectations theory, expansionary monetary and fiscal policies to reduce the unemployment rate are...

    According to adaptive expectations theory, expansionary monetary and fiscal policies to reduce the unemployment rate are O useless in the long run. O useless in the short run O ineffective on the price level O None of these. QUESTION 4 1 points Save According to the Phillips curve, a more expansionary macro-policy that causes inflation to be greater will: O place downward pressure on prices. O reduce unemployment. O reduce output O reduce the natural rate of unemployment. 1 pointsS...

  • 1) of the Central Bank of Kuwait puts in place an expansionary monetary policy, its decision...

    1) of the Central Bank of Kuwait puts in place an expansionary monetary policy, its decision is based on A) the fact that the economy is at ful employment B) Expectation of excessive inflation in the future C) the fact that the economy is in an expansion D) Unemployment level is high 2) When the interest rate is set at a very low rate A) the opportunity cost of holding money is very low B) the money demand will shift...

  • 1. (10 points) Milton Friedman has pointed out that when expansionary fiscal policy is used to...

    1. (10 points) Milton Friedman has pointed out that when expansionary fiscal policy is used to increase real GDP, some private investment will be crowded out. Expansionary monetary policy will usually increase real GDP, by increasing autonomous consumption expenditures and private investment will expansionary monetary policy have the same beneficial effect on autonomous consumption and private investment for a large country in a global economy? Analyze both the fixed and flexible exchange rate cases and explain why the BP line...

  • In February 2014, South Africa had an inflation interest rates in January and is expected to increase or maintain the interest rates through 2014

    QUESTION 4 In February 2014, South Africa had an inflation interest rates in January and is expected to increase or maintain the interest rates through 2014. The South African central bank is pursuing rate of 5.9 % and an unemployment rate of 24.1%. The South African central bank raised a(n): contractionary monetary policy to contain inflation. expansionary monetary policy to contain inflation. expansionary monetary policy to fight unemployment. contractionary monetary policy to fight unemployment QUESTION 5 When the economy is sluggish, the Fed will: raise interest rates, which...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT