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

This policy is results in faster results to speed up the economy for the short term. Fiscal Policy is later used to develop a plan of yearly actions and is a long term way to stabilize the economy. The next idea to stabilize the economy is a theory called monetarism which is the belief that if government did not interfere with the market economy that employment would be high and inflation low. Followers believe the government is the reason of downturns such as the recent recession.

Max: Now that we have taken care of fiscal policy we must acknowledge the second half of the efforts to pull ourselves out of the recession. Monetary policy! Monetary policy is the action of the federal Bank of the United States of America to manipulate the economy using the three tools. The three tools are open market operations, discount rate, and reserve requirements. The most commonly used tool is OMO’s, the fed buys bonds from the federal government and then sell to the public. With the profit they make from the bonds sold to the public they buy more bonds. And then it continues in this cycle.

Our economy is a machine that is ran by humans. A machine can only be as good as the person who makes it. This makes our economy susceptible to human error. A couple years ago the United States faced one of the greatest financial crisis since the Great Depression, which was the Great Recession. The Great Recession was a severe economic downturn that occurred in 2008 following the burst of the housing market. The government tried passing bills to see if anything would help it from becoming another Great Depression. Trying to aid the government was the Federal Reserve. The Federal Reserve went through a couple strategies in order to help the economy recover. The Federal Reserve provided three major strategies to start moving the economy in a better direction. The first strategy was primarily focused on the central bank’s role of the lender of last resort. The second strategy was meant to provide provision of liquidity directly to borrowers and investors in key credit markets. The last strategy was for the Federal Reserve to expand its open market operations to support the credit markets still working, as well as trying to push long term interest rates down. Since time has passed on since the Great Recession it has been a long road. In this essay we will take a time to reflect on these strategies to see how they helped.

The Federal Reserve exercises its power to stimulate stable employment economies and economic prices. The pursuit of the required employment rate and the creation of price stability, the Federal Reserve can increase or decrease the interest rate.

When the Federal government has to find ways to regain any money lost they lean on the expansionary Fiscal policy and the monetary policy to regain money into the economy. Whether, a change in taxes or even government spending. Even to the three major tools of the expansionary monetary policy to focus on. In the first part of this paper, I will discuss the expansionary fiscal policy and how the Federal government was involved and the changes that needed to be made to taxes, government spending. The second part of this paper, I will discuss the monetary policy and the tools the Federal Reserve used when under this policy. The expansionary fiscal policy was out to kick start the economy, and the expansionary monetary policy was out to change interest rate, and influence money supply. When discussing these two policies you have to think about one aspect when will it ever stop? Will a policy always have to be part of the economy to help the government one way or another?

The federal government responded to the crisis that affected businesses and Industries many ways. The Federal Reserve has been most successful in its double full-employment, low inflation mandate when it relies on fixed rules, and keenly looks on the intermediate term rather than trying to respond to short-term developments under political pressure. A number of policies were resolved to react on the emphasis of intermediate term stability on the handling of the

It seems that the United States is approaching a crucial moment both for the real economy and for the financial crisis that caused this severe recession. Of course, this is good news that comes after many months of bad news, but we must continue to take into account how extremely difficult it is to forecast the behavior of the economy and financial markets during the crisis. The general predictions have been wrong again and again, and unexpected and even unprecedented events have followed one another closely. A cautious optimism should be the order of the day. We fear that the recent reactions of financial markets and some analysts reflect too much optimism without paying sufficient attention to uncertainty. Public policies should continue

In this essay, I will briefly explain what happened during the financial crisis of 2007-09, and also discuss the contribution of the government to the financial crisis.

Everybody in the United Stated was affected by the recession that began in December of 2007 and spanned all the way to June 2009. Even though the recession is over, many people are still being affected by it and have still not been able to recover from the great recession. “The recent recession features the largest decline in output, consumption, and investment, and the largest increase in unemployment, of any post-war recession”. Many people lost their jobs due to the recession and some of them are still having a hard time finding jobs and getting back on their feet. Businesses

Fiscal policy: Given the breadth and depth of this recession, it was clear that the Treasury and the entire Obama administration had to take bold actions. In fact, right at the beginning, they were committed to a fiscal stimulus policy package which would be “substantial” enough to pull the economy out of the recession. The final stimulus package signed into law in 2009, the American Recovery and Reinvestment Act, was totaled $787 billion including about one-third tax cuts and one-third aid for states and the unemployed. Of the rest, labor health and education investment got 8%, and infrastructure investment got about 7%. It also included a large amount of government money to

Observers of failed economic stimulus packages have developed a fear that these large sums of funding will be mismanaged and therefore will not be able to stimulate the economy (“History of Government Spending,” n.d.).

The U.S government implemented policies that would adhere to the Keynesian model that suggest “that it is the responsibility of the government to help stabilize the economy” (Keynesian). Key actions the government and the fed took was quantitative easing, the stimulus and recovery act which were approved in 2009. Though the US has not completely recovered from the recession the government did effectively stabilized our

The fiscal and Monetary step taken in the last 18 months by the U.S. Federal Reserve, The U.S. Treasury Dept., The U.S. congress and the Presidents Bush and Obama were to help stabilize the U.S. economy.

This has the effect of bringing down interest rates, injecting money into the economy, and thus encouraging borrowing and spending. However, when interest rates are at or near zero and the economy still requires stimulus (a dangerous situation now referred to as a “liquidity trap”) (Blinder 466), central banks must use more extreme methods to resuscitate the economy.

| Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put