Question

You are now an adviser to President Obama. You need to give him 5 concrete suggestions on fiscal policy and monetary policy in an effort to get the economy to continue to improve. Give your suggestions and explain why you think your choices are good choices.

Answer 1

In an effort to get the economy to continue to improve following policy changes can be adopted :

1) Expansionary fiscal policy can be pursued in the public welfare sector . Government spending in health , education , infrastructure can help to develop a sound economy with better human capital .

2) Too much of spending by government and high reduction in taxes should be checked because that can lead to huge supply of money in the economy leading to inflation and fall of real GDP .

3) Expansionary monetary policy can be applied to increase money supply , this increases private investment leading to economic growth .

4) Monetary policy can also ward off the effects of crowding out due to government spending by controlling interest rates .

5) Government taking responsibility in unemployment benefits , spending in social benefits , spending in certain public goods etc can reduce income inequality in the economy . Progressive taxation or tight fiscal policy can be followed in case of rising inflation .