Question

Principles of Macroeconomics
Discussion: Macropolicy
Please respond with a minimum of 100 words

We learned about a number of real world complications that make monetary and fiscal policy more challenging than simple theory would suggest. Given the state of the economy and the causes of that state—think back to earlier discussions about the current economy—what should be the appropriate mix of fiscal and monetary policy, from a Keynesian perspective? From a neoclassical perspective? Which makes the most sense to you? Provide evidence (include and at least one link/citation) to provide support to your conclusion.

Answer 1

The purpose of this answer is to mark all the elements and functions of Government’s monetary and fiscal policies. Monetary policy is the one which is associated with controlling money supply in the economy. This is generally carries out by Reserve Banks. Fiscal policy is the one associated with the income and expenses of the government. It concerns the taxes and taxes revenues. The both policies are of great importance to an economy. The growth is generated or redirected with these policies in any country. Under monetary policy, Fed uses open market operations to control the money supply in the economy. Other than that, Fed sets the discount rates and reserve ratio requirements for banks in order to control the money supply in the economy. This also have an impact on the country’s inflation. According to Dr. Robert, Fed when used the monetary policy at the time of great depression, it impacted the economy greatly. Under fiscal policy, the policies that are used by the government are changing spending policies as well as changing income policies. Changing income policies implies here increasing tax rates in order to increase tax revenue. Sometimes, government end up caught in fiscal deficit. This happens when there is more government spending than revenue. It influences the business activity in an economy.

Perhaps, it is said by the author that both policies can have counter effects also but when focused on the positive side, they get along really good from the economy’s point of view. They stimulate the growth in GDP in an economy when in need.

According to Keynesian, government is the only factor that stimulate the economy. Keynesian suggests a mix of increasing spending and increasing aggregate demand in the economy. This will stimulate the economy as well as called out as heck of a mix.

According to neoclassical theorists, growth is achieved by low inflation rate and stable environment in the economy. They suggests a mix that lowers the tax rates and gets the unemployment at its natural level always.