Question

Your answers to this assignment should include references to recently published journal articles or books, media news as well as information on the web. Where appropriate you are encouraged to challenge relevant economic theories providing your own views.

Question 2.
Critically evaluate measures used by governments and central banks to manage the economies of their countries. By critical evaluation use convincing arguments for or against measures used to reduce, minimise or alleviate economic difficulties many countries face. You should use examples in your submission to illustrate your justified view.

Answer 1

To boost the economy every government and central banks used several policies. Central bank increased its intervention through expansionary monetary policy. This will be done through increasing money supply in the economy. They will print money and circulate among economy and its agents. But increasing the money will lead to high rate of inflation. The drawback of this expansionary monetary policy is this. The high level inflation will reduce the consumption pattern and retard development. On the other hand, government tried to cut the tax rate and increase the government spending. This will also affect the stability of economic growth. If the government rise its spending; it will lead to budget deficit. There is a huge difference occurred between government spending and the level of revenue. This will drain the financial reserves of the government. It will badly affect the future of government spending. This change becomes a temporary in nature and economy face high risk in its future.
Most of the fiscal and monetary policies ensure stability in the economy. Increasing the amount of money in economy leads to increase in the consumption pattern of the consumers and the adoption new production strategies by the producers. This makes the recovery of the economy and also improves the development of all the sectors. It will minimise the inequality and ensure the distribution in all over the economy, especially in remote areas also. This enhances the development of the economy in future and also at present time.
Considering the new budget and tax bills of Trump administration, US running deficit of $960 billion with a public debt of $167 trillion based on the data from 2019 fiscal year. Trump introduced this policy to boos the economic condition which nit have impact advertised by the administration. These policies only make huge impact over wealthy people than the middle income group. This makes huge ups and down in the business cycle. The mandatory spending of the US government consist of social security, income security, Medicare, Medicaid, veterans benefits etc. This rise in government expenditure creates inequality among different income groups.