Demand-Side Policies and the Great Recession of 2008
A recession can be defined as an overall downward spiral in a nation's economy. In particular, the outcome of recession is high inflation, high level of unemployment slowing down its gross domestic product (GDP) (Study, 2016). In this period there is an economic weakening and is usually accompanied and further complicated by decrease in the stock market, an upturn in unemployment and also a deterioration in the housing market. Some of the factors that cause recessions include high interest rates, increased inflation, decreased consumer confidence, and decreased real wages (Mankiw, 2014).
Fiscal Policies
In delineation, fiscal policies refer to the use of government expenditure and taxation to regulate the aggregate level of economic activity. It can be argued that by increasing investment or government expenditure, for instance, an initial stimulus to expenditure, through the multiplier-accelerator interaction results in an even greater increase in national income (Mankiw, 2014). When the government makes the decision with regard to the goods and services it buys, the transfer payments it disseminates or the taxes it collects, it takes part in the fiscal policy. Fiscal policy is deemed to be contractionary when the
On the other hand, fiscal policy is deemed to be expansionary when the expenditure is greater than the revenue, that is, the government budget is in deficit (Weil, 2008).
Monetary Policies
Monetary policy can be defined as one of the public intervention measures aimed at influencing the level and pattern of economic activity so as to achieve desired goals. Monetary policy covers all actions by the central bank and the government which influence the quantity, cost and availability of money and credit in the economy. Specifically, monetary policy works on two principles -- 1) Economic variables, meaning, the aggregate supply of money in circulation and 2) the Level of interest rates (Mankiw, 2014). First of all, the Federal Reserve oversees and institutes codes of practice and guidelines for a range of commercial banks, together with capital reserve requirements. Secondly, the Fed institutes the discount rate, which is the rate at which banks are able to borrow from the Federal Reserve. Third, it takes part in open market operations (OMO), i.e.; the purchasing and selling of U.S. Treasury Securities and other assets, with the purpose of controlling the federal funds rate, indirectly impacting the money supply in the economy of the United States (Genetski, 2014).
Benefits of Fiscal and Monetary Policies in Restoring Economic Growth and Decreasing Unemployment
Monetary policies and fiscal policies are implemented by the Fed in order to follow its statutory decree of maximum…
Monetary Policy In the United States, the Federal Reserve system is charged with implementing monetary policy (Investopedia, 2013). Monetary policy is essentially any the output of any central bank that seeks to manage an economy by means of manipulating the supply of money in the economy (Investopedia, 2013). The Federal Reserve (2013) defines monetary policy as what it does to "influence the amount of money and credit in the U.S. economy."
Monetary Policy Every economic activity in the United States is related to the policies that are decided by the monetary policies of the nation that are formulated. This involves all activities like purchase of houses, starting up of new business enterprises, and expansion of businesses, investments in new plants or machinery. It also affects our investment decisions like putting our investments in banks, bonds, or the stock market. It is also
" (ECB, 2007) Operational efficiency is held to be the most important of all the principles of operation for the ECB and can be defined as "the capacity of the operational framework to enable monetary policy decision to feed through as precisely and as fast as possible to short-term money market rates. These in turn, through the monetary policy transmission mechanism, affect the price level." (ECB, 2007) Equal treatment and harmonization
Monetary Policy Any change in the central back policy or the bank reserves, which is made to influence the interest rates and thus the investment, employment or production, is called the monetary policy. If the monetary authority wants to increase production, they need to increase the bank reserves. The bank then expands the money supply, which in turn reduces the interest rates. Monetary policy is one of the tools that a
Monetary policy is crucial to the economy and impacts all types of economic and financial decisions individuals make. For example, depending on the state of the economy, individuals may decide whether to obtain a loan to purchase a new car or house or to start their own company, whether to expand a business by investing in a new plant or equipment, and whether to put savings in a bank, in
While this represents a significant portion of the government's operating income, higher inflation would generate even more seigniorage by requiring larger volumes (or simply higher denominations) of currency in circulation. If prevailing annualized inflation rises above 4.6% but remains below 9.0%, real seigniorage could climb to $130 billion, or about 6% of all federal receipts in a year like 2009 (U.S. Financial Management Budget). In itself, cash carries an interest rate
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