Macroeconomic Objectives Of Fiscal And Monetary Policies

Course Description Principles of Macroeconomics deals with consumers as a whole, producers as a whole, the effects of government spending and taxation policies, and the effects of the monetary policy carried out by the Federal Reserve Bank. Macroeconomics is concerned with unemployment, inflation, and the business cycle. Text Required: Macroeconomics, Roger A. Arnold, 7th Edition, 2005 Recommended: Macroeconomics Study Guide, Roger A. Arnold, 7th

Another form of macroeconomic policy is fiscal policy, which involves the use of the Commonwealth Government’s budget in order to achieve the Government economic objectives. By varying the amount of government spending and revenue, the government can effectively alter the level of economic activity, which in turn will influence economic growth, inflation, unemployment and the external indicators of the economy.

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.

In the late 2007, early 2008 the United States and the world was hit with the most serious economic downturn since The Great Depression in 1929. During this time the Federal Reserve played a huge role in assuring that it would not turn into the second Great Depression. In this paper, we will be discussing what the Federal Reserve did during this time, including a discussion of our nation’s three main economic goals which are GDP, employment, and inflation. My goal is to describe the historic monetary and fiscal policy efforts undertaken by the U.S. Government and Federal Reserve, including both the traditional and non-traditional measures to ease credit markets and stimulate the economy.

In the late 2007, early 2008 the United States and the world was hit with the most serious economic downturn since The Great Depression in 1929. During this time the Federal Reserve played a huge role in assuring that it would not turn into the second Great Depression. In this paper, we will be discussing what the Federal Reserve did during this time including a discussion of our nation’s three main economic goals which are GDP, employment, and inflation. My goal is to describe the historic monetary and fiscal policy efforts undertaken by the U.S. Government and Federal Reserve including both the traditional and non-traditional measures to ease credit markers and stimulate the economy.

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 2008 Great Recession helped in restoring economic growth and lowered unemployment. Both fiscal and monetary policies are related ways use to increase the aggregate demand and aggregate supply. So, a shift in the aggregate demand curve to the right is expansionary fiscal policy meaning government spending has to exceed (2012). The G- component aggregate demand help to spend, allowing the C- component of aggregate demand to increase. On the other hand, the monetary policy promotes spending, investments, and lending increasing aggregate demand. During the downturn, the systems concentrate on growing demand total while the supply strategy looked for long-term growth in productivity and efficiency (Pettinger, 2012).

The United States fiscal policy can be defined by how the United States government collects revenue which is usually through taxes from consumers, and how the government spends (expenditures) the money collected in order to influence the economy. Moreover, many Keynesian economists believe that by adjusting level of taxation and government expenditures, supply and demand could also impact aggregate demand.

One of the most interesting facets of The Great Recession of 2008 is that it didn’t really begin in 2008. The fiscal and monetary policy that prompted what we know now as the Great Recession of 2008 really began in 2006 and 2007. What was happening then and why did it take so long for the nation to feel the recession? The answers to those questions explain a great deal about how the Federal Reserve Bank operates and how the different ideologies of economics affect our nation (Sumner, 2011).

A form of expansionary policy is fiscal policy, which portrays itself in tax cuts, transfer payments, rebates, and increased government spending. Macroeconomists were more against fiscal policy than monetary expansion. Keynesian economists gave fiscal policy a pivotal role in combating recessions. Monetarists contested saying the fiscal policy would be ineffective if the money supply remained constant, as a result, this view point became rare. Now macroeconomists subscribe to the idea that fiscal policy, and monetary policy can aggregate demand curve. They also concur that government should not try to proportion the budget no matter what state the economy is in. They agree that the budget acts as a balancing option to keep the economy stable.

There are four main macroeconomic objectives of the government it wishes to achieve in order to maximise the welfare of the society, they are: low and stable inflation, a favourable current account position on the balance of payments, low unemployment and sustained economic growth.

There has been a debate for years on what caused the Financial Crisis in 2008 and if there was one main cause, or a series of unfortunate events that led to the crisis. The crisis began when the market was no longer funding many financial entities. The Federal Reserve then lowered the federal funds rate from 5.25% to almost zero percent in December 2008. The Federal Government realized that this was not enough and decided to bail out Bear Stearns, which inhibited JP Morgan Chase to buy Bear Stearns. Unfortunately Bear Stearns was not the only financial entity that needed saving, Lehman Brothers needed help as well. Lehman Brothers was twice the size of Bear Stearns and the government could not bail them out. Lehman Brothers declared bankruptcy on September 15, 2008. Lehman Brothers bankruptcy caused the market tensions to become disastrous. The Fed then had to bail out American International Group the day after Lehman Brothers failed (Poole, 2010). Some blame poor policy making and others blame the government. The main causes of the financial crisis are the deregulation of banks and bank corruption.

As interest rates bottomed out quickly after the onset of the recession, the Federal Reserve could no longer stimulate the economy with traditional and time-tested techniques. The controversial and unconventional method chosen by the Federal Reserve, and other central banks around the world, is known as “quantitative easing” (QE). QE functions by injecting large amounts of reserve capital into commercial banks with the hope that those banks will then be willing to lend the money at affordable interest rates. Ideally, the addition to economic activity affected by the influx of capital to banks should keep the value of the dollar relatively low, avoiding deflation and encouraging foreign investment by those wishing to take advantage of an affordable dollar. The cheaper dollar should also make American exports look more attractive to potential consumers in other countries. If interest rates stay low, and banks begin lending again, consumer and investor confidence should hopefully rise, leading to more spending and thus, economic growth.

Since the global financial crisis of 2008, the UK government has been implementing various policies to combat the recession and stimulate economic growth. This essay will look at how effective the fiscal and monetary policies used since the crisis are in achieving the four-macro economic objectives. In addition, I will provide my input on the best way the UK government can carry out these policies.

In September 2008, thousands of financial sectors all over the world went bankrupt like dominoes after the failure of Lehman Brothers Bank, which is also known as the Financial Crisis of 2008, caused the severe recession of the economies around the world. In order to help the country out of crisis, the central banks in different countries had to take measures to stimulate the growth of economy. The goal of this essay is to introduce the measures that Bank of England have taken in 2008 of financial crisis and will discuss the macroeconomics consequences and effects. Three measures taken by Bank of England will be presented in first section and how macroeconomics outcomes influenced by policies and objectives will be discussed in the second section.