Government Intervention in the Economy: Are Monetary and Fiscal Stimulus Policies Possible Tools for Getting an Economy Out of a Recession

2541 Words Nov 30th, 2010 11 Pages
Subject Area: Economics
Topic: Deficit Spending
Essential Question: Should the government use instruments of monetary and fiscal stimulus policies to reactivate the economy?
Imagine people living in parks called Bushville’s, lines for soup kitchens that go for blocks, and all across the country kids running away from home travelling on trains searching for your next meal. This is just a taste of what 2009 could have been, but thankfully, the year did not go down this way although it will be remembered for global economic crises and change. For the first time in three decades, the United States was forced to leave its monetarist for m of economy and start to use Keynesian fiscal measures in order to try to revive its economy. Since then,
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In fact, that is a standard response in financial crises” (Krugman). In response to the 2008 global financial market meltdown, governments around the world demonstrate they agree with this since they are using fiscal measures to alleviate the recession.
Monetary Stimulus consists of the “regulation of the money to influence economy wide activity such as inflation, employment, and economic growth” (McEachern 385). This form of stimulus is the most accepted one by the world, due to the monetarist school of thought developed by Milton Freidman a University of Chicago economist and Nobel Prize winner whose ideas have become very popular among nations in the last three decades due to the very conservative form of running an economy it believes. In addition, monetary stimuli have proved to be the quickest way come out of a recession. According to University of Pennsylvania economist Bernardo Vega a top economist in the Dominican Republic and well known around the world, manipulation of the United States Federal Reserve’s key interest rate is a great way to promote investment. He says, Lowering the Fed’s key interest rate will have a positive effect on lenders and promotes investment that is correct; it should not have a negative effect on saving because if all the major countries in the world are doing it at the same time the savings have nowhere else to go (Vega). Monetary stimulus and deficit spending, in the form
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