¶ … fiscal and monetary policy.
On the most basic level, the primary difference between fiscal and monetary policy is that fiscal policy pertains to the actions of the federal government designed to influence the national economy through government spending and taxation while monetary policy refers to the actions of the central bank to govern the money supply. Tight or restrictive monetary and fiscal policy is used to curb inflation; a liberal monetary and fiscal policy is used as an economic stimulus (What is the difference between fiscal and monetary policy, 2002, As Dr. Econ).
2-Compare and contrast Keynes and Hayek
According to Keynes, it was sometimes necessary for the federal government to take a role in managing the economy, to correct the ebbs and flows of the business cycle. During severe recessions consumers became wary about losing their jobs, stopped spending money, and this further curtailed economic growth. Eventually, more and more workers were let go as production decreased and a depression occurred. Keyes said the government can forestall this phenomenon through government spending to give people jobs and encourage them to become consumers once more; it can also offer tax cuts. The government is allowed to spend at a deficit at such times, given that it can recoup the money once the economy improves. Keynes believed "that a prosperous society in which everyone is employed was the surest way of maintaining the independence of thought and action he considered the guarantor of true democracy" (Koehn 2011).
In contrast to Keynes, Hayek was far more terrified of hyperinflation than unemployment. He believed "that those who advocated large-scale public spending programs to cure unemployment were inviting not just uncontrollable inflation but political tyranny" (Koehn 2011). Hayek emphasized the need for prudent government spending and the use of the money supply as a tool to affect the economy. He believed in a balanced budget even during recessions, coupled with prudent tax cuts and spending cuts. In terms of Keynes' prescription for more federal spending Hayek stated "the creation of artificial demand...would...
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