Question

Fiscal Policy represents the measures Congress and the President can take to enact legislation to improve economic outcomes. This includes stimulus spending, austerity, and changing the tax code.

Monetary Policy is the set of options a government’s Central Bank, like the Federal Reserve in the USA, can take to increase or decrease the flow of money to improve economic outcomes.

Used in together, both policies can significantly impact an economy.

1.) Ted Cruz argues that government overreach is the reason that GDP growth has slowed in recent quarters. Explain whether this make Cruz a classical or Keynesian economist.

2.) If the economy heated up to a point where inflation reached 6%, unemployment hit 2%, and GDP growth hit 4.5%, would governments enact expansionary or contractionary policy? Describe specific strategies leaders would utilize within both Monetary and Fiscal Policy.

Answer 1

According to Ted Cruz arguments,he will considered as a Classical Economist.In current economic policy Cruz supports mainly on free Trade. Because it does not restrict imports and exports, with also he wishes to abolish the internal revenue service and to implement a single tax for all citizens.As he follows classical ecomists policies and opposes a higher minimum wages.

If the economy heated up to a pont where inflation reached 6% and unemployment hit 2%,both fiscal and monetary authority utilize or they will take credit control measures through appropriate channels.In the case of low unemployment the demand for employers exceeds the supply.In this labour market employers need to pay higher wages to attract employees.This leads to wage inflation.To control the situation the government will take fiscal measures through government revenue and expenditure.To take steps to decrease overall transfer payments and expenditure of the government.In monetary policy the central bank will controlling the money supply in the economy.Overall effect of monetary and fiscal policy of the concerned authorities will increase the Gross Domestic Product of the country.