Ecn 201

Wyn Henderson

ECN201

April 17, 2011

Fiscal & Monetary Policies

Living in a country that has approximately 7.684 trillion dollars in circulation and that also resides at the top of the list, of in terms of total GDP, it is imperative that the nation have a solid strategy in place to control a substantial economy (FRB). The population of the United States has climbed to over 300 million and continues to grow, making the monitoring of the nation’s economy a prodigious task. In order to ensure uniformity, there are historically implemented strategies in place. Included are fiscal and monetary policy, both used to control aggregate demand (Population).

Fiscal policy can be defined as the way in which a government adjusts the levels of spending, carried out exclusively by the legislative and or executive branches of the government (Heakel). The two predominate tools of the policy are taxes and government spending. Taxes collected from citizens are then used to finance necessary government spending. The theory of fiscal policy, based on the work of one of Britain's economists, John Maynard Keynes, says that the government can have an influence in macroeconomic productivity levels by increasing or decreasing tax levels and public spending (Heakel). By doing so, they then curb inflation and prevent additional downfalls. Influencing the economy has long been a part of the U.S. government's job, though the intensity of the monitoring has since changed. One of the major factors changing the importance of the close observing, was the Great Depression. Post World War II the government began to take a proactive roll in preventing another economic downfall and began to regulate the most important factors (Heakel). Unemployment and inflation became their center focus.

Along side the fiscal policy lies the sister strategy, monetary policy. The two are used in tandem to strive create environments ideal for our economy to thrive. No one policy outweighs the other,...