Meg Guild . Mr.Bare . Economics . 31 April 2017. Market

Two very important economic policies that point in different directions of fiscal policy include the Keynesian economics and Supply Side economics. They are opposites on the economic policy field and were introduced in the 20th century, but are known for their influence on the economy in the United States both were being used to try and help the economy during the Great Depression.

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.

First, we need to understand how the Great Recession occurred. It all started with President Ronald Reagan in the 1980s. Reagan was famous for his supply-side economic views (Amadeo 1). He used top-down economics meaning he used government intervention to give businesses tax breaks and subsidies to create economic growth. With this he also started a continuing phenomenon to deregulate Wall Street. He believed this would create vast economic growth and it did. But it created a bubble and it

A tax cut could possibly achieve the same result through the expansionary fiscal policy. This policy demonstrates that a surge in government purchases, declines in net taxes, or some combination of the two that is aimed at increasing aggregate demand enough to reduce unemployment and return the economy to the potential output. Therefore, fiscal policy is used to close a recessionary gap (McEachern, 2015, p.

Classical macroeconomists have been, if whatever, even more opposed to fiscal enlargement than to economic growth. Keynesian economists, however, gave monetary policy a primary role in combating recessions. Monetarists argued that economic coverage was useless so long as the cash supply changed into held regular. However, that sturdy view has come to be distinctly rare. maximum macroeconomists now agree that fiscal coverage, like economic coverage, can shift the aggregate call for curve. maximum macroeconomists additionally agree that the authorities need to no longer are searching for to stability the finances regardless of the nation of the financial system: they agree that the role of the finances as an automatic stabilizer enables preserve

When looking from both side of the Keynesians and Monetarist argument, we notice that both sides are correct in different terms. How unemployment is resolved in a labor market is opposed on the Keynesian side. While the Monetarist looked at the quantity of money, which should be increasing at a constant rate. The Monetarist reduce the money supply, which reduces the spending’s and increases the unemployment rate.

Generally, there was a calm period of the economy known as the Great Moderation where Central banks around the world claimed that it was due to increasingly competent use of interest rate policy (Garnaut, 2009). However, it was not long until the market failure makes its way into the economy in 2008. The period was known as the Great Crash where combination of several failures in the economy contributed to the collapse.

The period leading up to the 2007 recession was called “The Great Moderaton” because it had many years of low rates of inflation. During this time the real rate of interest, calculated by subtracting the rate of inflation from the nominal rate of interest, was said to have been negative for nearly 40% of the decade following the dot-com crash . A study by John B Taylor showed that the growth rate of the real federal funds rate from the years of 2001 to 2007 should have been rising at a steady rate of about one percent per year. However, because the Federal Reserve was

During discretionary fiscal policy the government spends and taxes to change the economy during a particular problem. Both Congress and the president have to take action when they agree that the economy is in need. When they do this they are trying to simulate the economy during a time of recession. Economists thought discretionary fiscal policy would eliminate the instability of the recession, however most had given up on the idea by 1980.

In economic theory, Keynes proposed that an increase in public spending could keep economic activity at an acceptable level. The resultant increase in Equilibrium GDP of government expenditure has a resultant stimulus in economy and aggregate expenditure. (Jackson & McIver, 2001)

Macroeconomics has become an overriding thing. The need to promote a healthy economy has been a critical goal for most governments and economists. However this has not been tenable in most cases. The economy can fluctuate but should not go out of control. This means that it has to stay within the expected realms of growth path so that it is capable of avoiding long-drawn recessions. This can occur based on internal mechanism or through help from policy that provide protection from inflation and recession. The economy should be able to respond to such polices without any major structural constraints. In this case, macroeconomics helps in understanding the underlying issues that can help in the realization of such economies. A healthy economy has to be steady and stable over the long-term. Based on this information, this paper explores the underlying issues in macroeconomics, especially with regard to components.

EFORE the financial crisis life was simple for central bankers. They had a clear mission: temper booms and busts to maintain low and stable inflation. And they had a seemingly effective means to achieve that: nudge a key short-term interest rate up to discourage borrowing (and thus check inflation), or down to foster looser credit (and thus spur growth and employment). Deft use of this technique had kept the world humming along so smoothly in the decades before the crash that economists had declared a “Great Moderation” in the economic cycle. As it turned out, however, the moderation was transitory—and the crash that ended it undermined not only the central bankers’ record but also the method they relied on to prop up growth. Monetary

Fiscal Policy: Similar to Monetary policy, Fiscal policy stabilize business cycle, reduce unemployment and inflation, and promote economic growth. But, fiscal policy is undertaken by state and local government to stabilize local economies. This is done by Congress and the President actions.

Governments make use of different macroeconomic policy instruments such as fiscal and monetary policies to stabilize the macro-economy and brig about growth to their respective countries. Yet there are debates on the efficiency of each of these instruments. The extremity in the debate is to the level that some economists arguing ineffectiveness of fiscal and monetary policies in all countries. There is another group who regard them as important policy tools, while they agree that their effectiveness might depend on different conditions in the economy.

Fiscal policy is based on the theories of the British economist John Maynard Keynes. The idea is that the state can influence the economy by increasing or reducing the taxes and public spending. This influence is limiting the inflation (taken for healthy for levels of 2-3%), increased employment and maintain the value of money.