AB 204 Unit 9 Monetary and Fiscal Policy Applications – Discussion

AB 204 Unit 9: Monetary and Fiscal Policy Applications – Discussion

General Information:

To be an effective learning tool the Discussion Board topics require your active discussion of the topic with at least two of your classmates.

First post made during, or before, Saturday.

Posts on at least 3 different days.

Responses to at least two other classmates.

Substantive posts that stimulate further active discussion, posts that accurately reflects the learning, that are logical, and clearly presented with correct spelling, word usage, and grammar.

To be counted as a substantial post, your main post to the Discussion topics should be at least 200 words per Discussion topic.

Monetary and Fiscal Policy Applications

The Discussion topics focus on the effects of monetary and fiscal policy instruments on the aggregate demand in the economy, and the short-run trade-off between the rate of inflation and rate of unemployment. The specific areas of discussions include how monetary and fiscal policy instruments are used to change AD, the differences between monetary and fiscal policy and their respective instruments, and policy measures to deal with the short-run trade-off between rates of inflation and unemployment in the economy.

Read Chapters 21 and 22, and remember to include references and links to the websites that are important contributors to your posts (comments). Respond to two of the following Discussion topics.

 unit 9 Discussion

Hello Professor and Class,

A

Expansionary monetary policy is when a central bank uses its tools to stimulate the economy. That increases the money supply, lowers interest rates, and increases aggregate demand. It boosts growth as measured by Gross Domestic Product (GDP). … It is the opposite of contractionary monetary policy.

The difference between Contractionary and Expansionary fiscal policy is;
When the economy growth is too slow the government lowers taxes or makes new projects, which increases spending and stimulates the economy. (expansionary fiscal policy)

When economy growth is too high, the government increases taxes to slow down spending which decreases the overall demand in the economy. (contractionary fiscal policy)

Two policy tools that the government uses are fiscal policy and monetary policy. Monetary policy uses changes in the quantity of money to alter interest rates, which in turn affect the level of overall spending. “The object of monetary policy is to influence the nation’s economic performance, as measured by inflation”, the employment rate and the gross domestic product, an aggregate measure of economic output. Monetary policy is controlled by the Central Bank and influences money supply.

Fiscal policy uses changes in taxes and government spending to affect overall spending and stabilize the economy. When lowering taxes the people have more to spend then the government decreases spending and the economy slows down therefore the economy stabilizes. The objective of fiscal policy is the governments’ typical use fiscal policy to promote strong and sustainable growth and reduce poverty. During periods of recession congress has the option to decrease taxes to give households more disposable income so they can buy more products. Therefore, lowering tax rates increases GDP.

B

The benefit of these policies is that they help stabilize the economy. Although, with so many different changes by households and firms the aggregate demand shifts; if the government does not respond, the result is undesirable and unnecessary fluctuations in output and employment. Both monetary and fiscal policy work with different lags attempting to stabilize the economy but often end up not working out so well. With change in monetary policy and a change in actual economic conditions the Fed will have to wait before policy changes have the desired effect of either slowing or accelerating economic growth. We see how the Fed can change the money supply, interest rates, investment, and the growth rate of GDP through open market operations. Unfortunately, Fed policy does not always work as smoothly as the Fed desires.

Reference

Mankiw, N. G. (2015). Principles of Macroeconomics, 7th Edition. [Kaplan]. Retrieved from https://kaplan.vitalsource.com/#/books/9781305156067/https://kaplan.vitalsource.com/#/books/9781305156067/ 

Catherine O.