Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
Monetary vs. Fiscal Policy
With the onset of the "Great Recession" and its aftermath, U.S. Government institutions unleashed a torrent of fiscal and monetary policy activities designed to forestall an economic calamity. Two years after the official end of the recession in July 2009, fiscal and monetary policy levers are still active in their attempt to jumpstart an economy that has been anemic in its growth rates and slow to add private sector jobs. Fiscal and monetary policies are critical to engendering an environment in which individuals and business can work, save, and invest and thereby advance the economy in aggregate.
Fiscal and Monetary Policy and their Influences
"Fiscal policy refers to the government's choices regarding the overall level of government purchases or taxes" (Mankiw, N.G. 2009. P.371); while monetary policy is concerned with "decisions by policy makers regarding the nation's money supply" (Mankiw, N.G. 2009. P.232). Fiscal policy tools impact the economy in the long-run by "influencing saving, investment, and growth" (Mankiw, N.G. 2009. P.371), and in the short-run by altering "the aggregate demand for goods and services" (Mankiw, N.G. 2009. P.371).While fiscal policy can shift the aggregate supply curve, its foremost use is to directly or indirectly alter the aggregate demand curve.
An expansionary fiscal policy which indirectly influences growth might involve a reduction in marginal tax rates in the economy, which would allow individuals to have more disposable and discretionary income. As such the aggregate demand curve would shift outward...
A direct expansionary fiscal policy influence would involve the government itself increasing its purchases of goods and services, which would lead to an expansion of the government spending component of GDP and an increase in the national income. Fiscal policy also has utility because of its multiplier effect which can add more than one dollar for each dollar which is spent in direct purchases or though indirect action in the form of tax rate reductions. Contrarily, there can also be a crowding out effect which works to diminish the impact of fiscal policy especially on direct government purchases.
Monetary policy also impacts the economy in the long-run and short-run, and can be described in terms of changes in the money supply or changes in the interest rate. A policy designed to increase the money supply in the economy would effectively "lower the interest rate (cost of borrowing) and increase the quantity of goods and services demanded at any given price level" (Mankiw, N.G. 2009. P.368); as such the aggregate demand curve would shift upward and to the right and GDP would increase. Monetary policy however, must contend with the inflationary effects of policy designed to expand the economy by increasing the money supply.
Monetary and Fiscal Policy Institutions
For fiscal policy the government agencies charged with creating and implementing fiscal policy are the U.S. Congress, the President, and the Executive Branch; specifically the U.S. Treasury which "promotes…
References
Federal Reserve.gov. (2011). Monetary Policy. Federal Reserve.gov. Retrieved December 5, 2011 from http://www.federalreserve.gov/monetarypolicy/openmarket.htm
Mankiw, N.G. (2009). Brief Principles of Macroeconomics (5th ed.). Mason, Ohio:
South- Western Cengage Learning
U.S. Treasury.gov. (2011). U.S. Treasury Mission. U.S. Treasury.gov. Retrieved December 5, 2011 from http://www.treasury.gov/Pages/default.aspx
fiscal and monetary policy. On the most basic level, the primary difference between fiscal and monetary policy is that fiscal policy pertains to the actions of the federal government designed to influence the national economy through government spending and taxation while monetary policy refers to the actions of the central bank to govern the money supply. Tight or restrictive monetary and fiscal policy is used to curb inflation; a liberal
Macroeconomic Situation in the U.S.: Corrective Fiscal and Monetary Policy December 2007 marked the onset of the Great recession, which ended in mid-2009 but left the U.S. economy struggling through the damage wrought by its severity. Federal policy has gone a long way in the prevention of an occurrence of another recession, but growth remains too sluggish and inadequate for the full-health restoration of the economy. Vigorous and sustained fiscal
macroeconomic policy measures introduced by the UK authorities in response to the global credit crisis and associated UK recession Macro-economic policy measures This essay is based on two scenarios of financial crisis that occurred consecutively in the United Kingdom and other parts of the World. The recent economic recession started in 2007 up to 2010 while the credit crunch was experienced in 2002 up to 2004. In both of the financial
Balfour Beatty UK The multinational infrastructure PPP firm The rise of the public-private partnership (PPP) during the onset of the global financial crisis in 2008 is most representative of market activities in the infrastructure investment sector. Appropriations linked to economic and fiscal policy in the UK since this period has had influence on the steering of PPP projects and the strategies designed by participatory entities. Conversely, the PPP relationship to infrastructure in
Political Science Canada: Comparative Politics Canada, like any other nation suffered terribly from the effects of the global financial crisis. The economic impacts from Global Financial Crisis were resolved through Canada's political and provincial administration structures. The Great Recession further intensified such trends towards elements of the precarious unemployment across Canadian provinces such as British Columbia mostly with certain population groups. This paper intends to illustrate how the global fiscal crisis has
Disrupting America's economic system is a fundamental objective of terrorists Even as the world continues to struggle with the terrible shock from the September 11 attacks in New York and Washington, one principle lesson has already become clear: disrupting our economic system is a fundamental objective of terrorists. Prior to September 11, our economic environment was certainly not immune to terror, in comparison to many other nations; we lived relatively terror-free. Now,