The Limits to Macroeconomic Policy
A country’s economy represents an equilibrium driven by the vast workings of many moving parts. Some of these parts include governments, policy makers, trade partners, international investors and banking authorities. Today’s technological advancements have made it easier than ever for monies to traverse national borders quickly and efficiently. This capability facilitates inflows and outflows of capital in response to signals. Not all of these signals are economic yet the effects can have a devastating impact.
Assessment
Economic crisis has precipitated many changes throughout the course of history. Whether it is the great depression of the 1930’s, the Latin Debt crisis in the early 1980’s or more recently the financial collapse of the U.S. housing market in 2007, crisis precipitates change. Changes within macroeconomic policies surrounding monetary, fiscal or political programs are adjusted to reverse negative trends and sustain long term positive growth. There is a sort of yin and yang balance to economic policies evolves and cycles through a continuum of consumption and conservation (Cervone & Shoda, 1999).
A country attempts to optimize the balance of consumption and conservation, in order to maximize productive economic growth. The primary drivers used to change economic outcomes are fiscal and monetary policies. These policies are adjusted based on trends associated with consumption and conservation patterns. Policy makers, whether government or independent (e.g. Central Banking Authorities such as the Federal Reserve), evaluate risk factors associated with these trends, in conjunction with historical events, in order to prevent negative economic outcomes. These idiosyncratic ...
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...is and change in both monetary and fiscal policies toward the betterment of economic outcomes.
Works Cited
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Throughout Eveline Adomait and Richard Maranta’s Dinner Party Economics there is continuous discussion surrounding the problems that economies face around the world and the various methods that can be used to alter the state of the current economic conditions. Changes in consumer spending patterns can become a problem for the economy as a whole, potentially resulting in over-inflation or recession. Implementing discretionary policies such as monetary policy through changing interest rates, and fiscal policy through taxation and government spending, makes it possible to fix these economic problems.
report of the national commission on the causes of the financial and economic crisis in
This article is also a good example of how the aggregate demand curve can be shifted by the determinant of monetary policy. Please refer again back to article #4, which explains the principle of the aggregate demand curve. By definition, Monetary Policy is a policy influencing the economy through changes in the banking system’s reserves that influence the money supply and credit availability in the economy. The purpose of monetary policy is to improve the economy by either increasing or decreasing the real income (or GDP) of the U.S. economy so that the economy is running at its potential. The Federal Reserve (The Fed) is responsible for conducting monetary policy for the United States Economy. There are three ways that the Fed conducts monetary policy: 1) Changing the reserve requirement. 2) Executing open market operations (buying and selling bonds). 3) Changing the discount rate.
..., monetary and fiscal policy will work in different ways. People aren’t stupid and they aren’t super intelligent; they are people. If the government uses an activist monetary and fiscal policy in a predictable way, people will eventually come to build that expectation into their behavior. If the government bases its prediction of the effect of policy on past experience, that prediction will likely be wrong. But government never knows when expectations will change.
Understanding Gross Domestic product is central for understanding the business cycle and the progression of long-run economic growth (Hubbard & O’Brien, 2011, p. 631). The GDP is defined as the value-added of all goods and services produced in a given period of time within the United States (2008). The GDP is widely used as an gauge economic wellness and health of the country. What the GDP represents has a hefty impact on nearly everyone within our economy. As an example, when the economy is healthy, you will usually see wage increases and low unemployment as businesses demand labor to meet the increasing economy. The government has two types of economic policies used to control and maintain a healthy economy, fiscal policy and monetary policy. When economic growth is healthy it will have a positive on both individuals and businesses.
The federal government influences economic activity in an attempt to maintain growth, employment, and price stability through fiscal policies. Our government influences economic activity by implementing a discretionary fiscal policy or a monetary policy. A discretionary fiscal policy is used to expand or contract economic growth. Monetary policies are by the Federal Reserve to expand or contract the economy’s wealth. Both discretionary and monetary policies affect the aggregate demand and the aggregate supply.
Monetary Policy is the changes in the quantity of money in circulation designed to alter interest rates and affect the level of overall spending. Fiscal policy is t...
Mr. Emanuel, in the current economic climate, the Obama administration’s course of action has been to pursue aggressive countercyclical fiscal policies designed to prevent further economic deterioration. Critics of these policies argue that:
Monetary policy is said to be expansionary when it increases the total supply of money in the economy more rapidly than usual. But it can also be termed as contractionary if it expands the overall money supply in a slower rate or shrink it. The price at which money can be borrowed at is usually referred to as the economy’s interest rates. The main aims of monetary policies are: control inflation, control economic growth, unemployment and the exchange rates.
The Social Studies Help Center (n.d.). Monetary and Fiscal Policy. Retrieved November 5, 2011, from http://www.socialstudieshelp.com/eco_mon_and_fiscal.htm
Davies, Roger J., and Osamu Ikeno. The Japanese Mind: Understanding Contemporary Japanese Culture. Boston: Tuttle Pub., 2002. Print.
Economic policies, the foundations in which our country 's taxation and economy may be made or broken in a short or long run as a whole. There are many sides to the argument of economic policy, some on the side of the rich, others the poor, and some simply stand in a neutral position to help provide the best they can. The ideas of supply-side, demand-side, and monetary policies each have their own unique and individual strengths that have given many different advantages to the country over the years. However, they also are always at odds with each other over which policy works the best, how we can monetize the country, and how we can secure income and jobs for everyone. Through each of their individual merits each policy grants a purpose that
Difficulties in Formulating Macroeconomic Policy Policy makers try to influence the behaviour of broad economic aggregates in order to improve the performance of the economy. The main macroeconomic objectives of policy are: a high and relatively stable level of employment; a stable general price level; a growing level of real income (economic growth); balance of payments equilibrium, and certain distributional aims. This essay will go through what these difficulties are and examine how these difficulties affect the policy maker when they attempt to formulate macroeconomic policy. It is difficult to provide a single decisive factor for policy evaluation as a change in political and/or economic circumstances may result in declared objectives being changed or reversed. Economists can give advice on the feasibility and desirability of policies designed to attain the ultimate targets, however, the ultimate responsibility lies with the policy maker.
These two policies use to try to shorten recessions. Fiscal policy has its initial impact in the goods markets, then monetary policy has its initial impact mainly in the assets markets, which both effect on both level of output and interest rates. (R. Dornbusch et al., 2008)
...nces discussed above. Right now, the global economic is recovering, but the study of reasons of the crisis still teaches many countries a lesson on how to build a solid financial system and how to deal with other macroeconomic problems.