Do Fiscal and Monetary Policy Stimulate the Economy? Essays

1467 Words 6 Pages
Constant changes in market economies make it nearly impossible to maintain a constant level of economic activity. Fluctuations are the heart of market economies; market economies cannot exist without them. These fluctuations can be described as the business cycle, and like every cycle there are a series of events that construct these phases. The business cycle consists of three phases, expansion (until peak point is reached), a decreasing point into recession, and a rebound from recession to recovery. These events must be examined closely because it is possible for the economy to hit extreme highs and extreme lows which can abruptly change the flow of the cycle. For example, if overlooked and the economy hits an extreme low, considered a recession it would be extremely difficult for the economy to recover from this recession and would have to face severe consequences such as enormous debts. Consequences like these are the exact reasons why we have a governing body of the nation (government), whose job is to monitor the economy to produce sustainability and growth. In situations like these, the government implements and enforces certain policies that apply to specific situations and circumstances. Such policies guide the government into influencing and controlling the direction of activity through borrowing, spending, and taxes. Those policies are called economic policies, which are also implemented to control the total demand for final goods and services in the economy at…