What is fiscal policy? What is monetary policy? Explain these two different appr

Question

What is fiscal policy? What is monetary policy? Explain these two different approaches to macroeconomic policymaking. Who make fiscal policy? who make monetary policy? what would be the appropriate fiscal policy response to recession? To inflation? what is the appropriate monetary policy response to recession/inflation? How would conservative Republicans and liberal Democrats differ in their view of macroeconomic policy? Why is macroeconomic policy politically important? How do political views influence macroeconomic policy? Discuss macroeconomic policies within the context of the current economic crisis. What kinds of policies would help to pull the U.S. economy out of its current slowdown?

Explanation / Answer

Multiple Questions Answering 5 Questions.

1)Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetarypolicy through which a central bank influences a nation's money supply.

2)Monetary policy Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as modifying the interest rate, buying or selling government bonds, and changing the amount of money banks are required to keep in the vault (bank reserves).

3)

The goal of studying macroeconomics, however, is not just to explain economic events but also to improve economic policy. Macroeconomic policies are government actions designed to influence the performance of the economy as a whole. By understanding how government policies affect the economy, economists can help policymakers do a better job and avoid serious mistakes.

The policy goals that macroeconomists typically associate with the discipline include economic growth, price stability, and full employment. Policymakers always face three fundamental macroeconomic questions: (1) How can the rate of economic growth be increased and sustained? (2) How can unemployment be reduced? (3) How can inflation be kept under control? To find answers to these questions, policymakers can implement the tools of three major types of macroeconomic policy: monetary policy, fiscal policy, and structural policy.

The term monetary policy refers to the management of the nation’s money supply (cash and coins, although modern economies have other forms of money such as savings and time deposits and money market mutual funds). Most economists agree that changes in the money supply affect important macroeconomic variables, including national output, employment, interest rates, inflation, stock prices, and the exchange rate. In almost all countries, monetary policy is implemented by a government institution called the central bank.

Fiscal policy refers to decisions that determine the government’s budget, including the amount and composition of government expenditures and government revenues. The balance between government spending and taxes is a particularly important aspect of fiscal policy. When the government spends more than it collects in taxes, it runs a deficit, and when it spends less, the government’s budget is in surplus. There is a consensus among economists that fiscal policy can have an important impact on the overall performance of the economy.

4) Fiscal policy decisions are determined by the Congress and the Administration

5) The Federal Reserve is in charge of monetary policy

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