Fiscal Policy

Fiscal policy and Monetary Policy are tools used to influence our nation’s economy. Fiscal Policy has to do with the taxing and spending of our government, while Monetary Policy has to do with the management of interest rates and/ or changes in money supply which is executed by the central bank. Fiscal Policy can be used to stimulate the economy or even restrain the economy. Monetary Policy impacts the consumer and business spending. While accomplishing price. Immovability, full level of employment, and economic growth (Farnham, 2015) Between the Two policies, Monetary Policy is definitely easier to conduct than Fiscal Policy due to the fact that Monetary Policy has a shorter Administrative gap than Fiscal Policy.

If the government believes that there is an increase in income, with the goals of the policy, the Federal Reserve can increase the interest rates However if the Fed wants to stimulate the economy, they would decrease the interest rates to increase the money supply. In a recession for example; Consumers, obviously don’t spend as much so in turn business production decreases, which causes firms to lay of employees and stop investing. Foreign exports may also decrease causing an overall decline. The government can now respond with a policy which goes against the direction the country is headed in, which would be a Monetary Policy. It entails an upsurge in money supply which would cause an increase in prices. (Mathai, 2012) If a recession is really severe nevertheless, no matter how low the Fed sets the interest rates, it couldn’t be low enough to undo a substantial downfall of the economy then this is when a fiscal policy will have to come into play. A Fiscal policy could be used during a global crisis by decreasing taxes and an increasing spending. The drawback to this policy is that it takes longer to implement but could be more effective in a great depression.

Citing

Paul.G.Farnham (2014) Economics for Managers. Georgia: Pearson

Mathai, Koshy. (May...