The main components of macroeconomic policy are monetary and fiscal policy. The main aims of macroeconomic policy are continued economic growth, high employment, stable prices (low inflation), an elevation in average living standards, and a maintainable stance on the balance of payments (Macroeconomics). Practically all governments apply macroeconomic policies to reach policy goals and to improve the workings of the economy. Economic growth is important for reducing poverty levels. Continued growth means the ability to meet the needs of the current generation without burdening future generations with debt (Macroeconomics). Low inflation rates are important because high inflation rates can damage the international competitiveness of a country’s commodities. Balance of payments refers to reducing deficits so that they do not create an unstable economy. Macroeconomic policy can also be concerned with redistributing income and thus, shrinking the income gap between the rich and the poor.
Monetary policies can be referred to as demand-side macroeconomic policies. They operate by promoting or restraining spending on goods and services. Economy-wide recessions and booms reflect rises and falls in collective demand instead of in the economy’s productive capacity. Monetary policy attempts to reduce, or remove these variations (Pechman). It utilizes modifications in the money supply to alter interest rates and accelerate economic activity. Two types of monetary policy are expansionary and contractionary. When the Federal Reserve increases money supply, the policy is expansionary. When the Federal Reserve decreases money supply, the policy is contractionary (Sparknotes). Under expansionary monetary policy, the economy grows a...
... middle of paper ...
...nment Macroeconomic Policy." Tutor2u | Economics | Business Studies | Politics | Sociology | History | Law | Marketing | Accounting | Business Strategy. Web. 22 Oct. 2011. .
Mankiw, Greg. "Four Goals of Tax Policy." Greg Mankiw's Blog. Web. 22 Oct. 2011. .
Pechman, Joseph A. Federal Tax Policy. Washington: Brookings Institution, 1971. Print.
"SparkNotes: Tax and Fiscal Policy: Monetary Policy." SparkNotes: Today's Most Popular Study Guides. Web. 21 Oct. 2011. .
Weil, David N. "Fiscal Policy: The Concise Encyclopedia of Economics." Library of Economics and Liberty. Web. 21 Oct. 2011. .
"KEYNESIAN ECONOMIC POLICIES." KEYNESIAN ECONOMIC POLICIES n.pag. Library of Economics and Liberty.com. Web. 3 Dec 2013. .
Monetary Policy refers to what the government does to influence the amount of money and credit in the economy, what will happen if money and credit affects interest rates and the performance of the economy. This policy ensures the price stability and general trust in the currency.
"Monetary policy is a policy of influencing the economy through changes in the banking system's reserves that influence the money supply and credit availability in the economy" (Colander, 2004, p. 659). Monetary policy also refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote national economic goals. The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy. The Federal Reserve controls the three tools of monetary policy- open market operations, the discount rate, and reserve requirements.
Monetary policy is an extremely valuable guideline for our economy. Small changes in the money supply can affect the price level, interest rates and almost all aspects of the macroeconomic world. When looking at monetary policy, understanding the variables of each argument can help us determine a more extensive view of each policy.
Kinsley, Michael. “Tax Reform in Plain English. Honest!” Time 9 Dec. 2002: 58. Academic OneFile. Web. 31 Mar. 2011.
Ragan, James F., Jr. & Thomas, Lloyd B., Jr. Principles of Macroeconomics. The Dryden Press. Fort Worth, TX: 1992.
Fiscal policy uses changes in taxes and government spending to affect overall spending and stabilize the economy. When lowering taxes the people have more to spend then the government decreases spending and the economy slows down therefore the economy stabilizes. The objective of fiscal policy is the governments’ typical use fiscal policy to promote strong and sustainable growth and reduce poverty. During periods of recession congress has the option to decrease taxes to give households more disposable income so they can buy more products. Therefore, lowering tax rates increases GDP.
Monetary Policy involves using interest rates or changes to money supply to influence the levels of consumer spending and Aggregate Demand.
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...
The term Monetary policy refers to the method through which a country’s monetary authority, such as the Federal Reserve or the Bank of England control money supply for the aim of promoting economic stability and growth and is primarily achieved by the targeting of various interest rates. Monetary policy may be either contractionary or expansionary whereby a contractionary policy reduces the money supply, reduces the rate at which money is supplied or sets about an increase in interest rates. Expansionary policies on the other hand increase the supply of money or lower the interest rates. Interest rates may also be referred to as tight if their aim is to reduce inflation; neutral, if their aim is neither inflation reduction nor growth stimulation; or, accommodative, if aimed at stimulating growth. Monetary policies have a great impact on the economic stability of a country and if not well formulated, may lead to economic calamities (Reinhart & Rogoff, 2013). The current monetary policy of the United States Federal Reserve while being accommodative and expansionary so as to stimulate growth after the 2008 recession, will lead to an economic pitfall if maintained in its current state. This paper will examine this current policy, its strengths and weaknesses as well as recommendations that will ensure economic stability.
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
Brue, Stanley L., and McConnell, Campbell R. Economics–Principles, Problems and Policies (15th edition). Boston: Irvin/McGraw-Hill, 2008.
In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).
In every economy, there are 4 main and 4 additional objectives of government macroeconomics objectives. We can point out that the objectives have their own conflicts which difficult to carry it out at the same time between government macroeconomic objectives. Therefore, government use different policies to minimize the conflict.
Looking at the question, one will look at the following, price stability, economic growth, income inequality, balance of payments, unemployment, and economic development. During this assignment, we are going to look at each of the macroeconomic on their own, then how they interact with each other. Furthermore, which of these macroeconomic aims are the most important to our economic environment?.