Supply Side Economic Policy

Suppose economists agree that the country has recently entered a recession. Identify one supply-side and one demand-side strategy to help the economy, and explain why it would be used.

In order for the Federal Reserve to fulfill their goal of moderate long term interest rates, stable prices and maximum employment, they rely on developing strategic changes to the monetary policy. Through monetary policy changes, the Federal Reserve can either restrict or encourage economic growth and inflation, thereby molding the macroeconomy into a state of consistent health. Overall, there are three tools used to modify the monetary policy, they include reserve requirements, discount rates, and open market operations. In an effort to promote price stability within the economy, these tools influence monetary conditions by affecting interest rates, credit availability, money supply and security prices. While one tool is use more frequently than the others, all three are necessary in establishing stable economic conditions.

Over the past few years we have realized the impact that the Federal Government has on our economy, yet we never knew enough about the subject to understand why. While taking this Economics course it has brought so many things to our attention, especially since we see inflation, gas prices, unemployment and interest rates on the rise. It has given us a better understanding of the effect of the Government on the economy, the stock market, the interest rates, etc. Since the Federal Government has such a control over our Economy, we decided to tackle the subject of the Federal Reserve System and try to get a better understanding of the history, the structure, and the monetary policy of the power that it holds.

The Federal Reserve monetary policy exists to accomplish the goals of their dual mandate, maximizing employment and keeping prices stable. To accomplish these goals, monetary policy either changes the interest rate, namely the federal funds rate, or the money supply. Before carrying out these policies, the Fed considers economic data such as the trends in the CPI which describes the average level of inflation and various trends in the labor market . Through monetary policy, the Fed is also responsible for fighting recession. To do so, the Fed decreases interest rates but only to a certain point because nominal interest rates cannot go below zero. Therefore, it is important that the Fed return the federal funds rate back to its neutral rate before the next recession begins .

Keynesian demand side economics calls for government intervention, while supply side economics means less government intervention. Keynesian came to play after the Great Depression when FDR intervened in the government, which meant the traditional view of supply side economics went out the window.

In the U.S. the Government still maintains some control of factors of production and responsibility to maintain a steady economic pace. It uses a mix of two types of economic policies for achieving economic stability, fiscal policy and monetary policy. The congress established that monetary policy to promote effectively maximum employment, stable prices and interest rates is to be the main objective of the Federal Reserve, the nation’s central banking

Federal governments through the central banks bear the role sustaining a stable economy for its citizens. Besides the fiscal policy, monetary policy is a core approach utilized to regulate the money supply in the economy. In an economic perspective, increased money supply strengthens the consumers ‘purchasing power prompting them to continue borrowing with an urge to invest. Consequently, interests rate raises while the price for bonds lowers, thus causing inflation. To level, the government may intervene in central banks by increasing the bank lending rate as a strategy to reduce supply of money in the market.

First of all, one policy of the Economic policy is "supply-side economic policy". Supply-side policy is a policy that is meant to improve societies' economy. Also, it is used to describe changes in marginal rates that influence the economic rates. Supply-side economic policy began in the late 1970's. From the 1990-1993 tax were increasingly high. President john F. Kennedy made tax reductions that dropped tax rates to 90 percent. By the 1980's President Ronald Reagan reduced tax rates by up to 70 percent. During his 7 year of being president economic growth increased by 4 percent. Ronald Reagan might have used supply-side economics but others have used the opposite.

The role of government in the American economy goes past just being a regulator for specific industries. There are two main tools for achieving these objectives: fiscal policy and monetary policy. The Federal Reserve sets the nation's monetary policy to promote the objectives of maximum employment, stable prices, and moderate long-term interest rates.

Why are economic policy so important? To evaluate it, people have to look at the policies inside it. The supply-side, demand-side and monetary are all within economic policies.

To overcome poverty and the flaws of the economic crisis in our society, we need to envision our social life. We have to free our mind, imagine what has never happened before and write social fiction. We need to imagine things to make them happen. If you don't imagine, it will never happen. (Muhammad Yunis) Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting levels of taxation, government budgets, the money supply. The three topics I will be discussing are supply-side economics, demand-side economics, and monetary policy, and how they affect the economy and why they are important.

The Federal Reserve has frequently used three different policy tools to influence the economy: opening market operations, changing reserve requirements for banks and setting the "discount rate." Open market operations are carried out on a daily basis where the Federal Reserve’s buys and sells U.S. government bonds to either inject money into the economy or pull money out of circulation. By setting the reserve ratio, or the percentage of deposits that banks are required to hold and not lend back out, the Federal Reserve’s directly influences the amount of money created when banks make loans. They can also target changes in the discount rate, or the interest rate charged by the Federal Reserve’s when making loans to financial institutions, which is intended to impact short-term interest rates across the entire economy. This is how the monetary policy works to aid the economy.

The main idea of supply-side economics is that if people have more money, they can spend more money and invest their money into numerous items. President Bush and President Reagan shared the idea that if they cut taxes, people would want to work more and lower the unemployment rate. Reaganomics had disastrous consequences. There was excessive unemployment, but the economy begun to recover. When the economy was beginning to recover, tax cuts made it agonizingly difficult for poorer people to get more money. The only people who were getting money and investing money were the rich

The common goal of an economist is to continue economic growth and have stabilized the economy. They both just want the end goal to be that they want growth without price inflation. Two types of methods are Demand-Side Policies and Supply-Side Policies. Demand-Side policies are policies that are federal policies. They are designed to increase or decrease what is in demand to fluxgate sales. Supply-Side policies are designed to stimulate output and lower employment. I agree with the economists who believe in Demand-Side Policy. Although both policies have the same end goal which is to make the economy stable and lower unemployment. They go by a fiscal policy this policy is how the government attempts to stabilize the economy. They do this through

| 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