Fiscal and Monetary Policy, and How They Affect the Economy and You

The key to a smooth running economy is having sound fiscal and monetary policies. We need policies that can be changed over time to better serve our economy as a whole. The United States economy has had its ups and downs, and the economy is definitely in a downward period now, but fiscal and monetary policies can be adjusted to fit what is best for the United States. To really understand the United States economy and understand the issues arising in the news lately, an understanding of the basic concepts behind fiscal and monetary policies is necessary.

Fiscal and Monetary polices are tools that the Federal Reserve Bank, and the government uses to help keep the economy running smoothly. The United States has had periods of hard economic times since the beginning our country’s establishment. The United Stated has had recessions, but our economy has always been able to come back relatively quickly. The Great Depression during the 1930s started as a recession and bank crisis similar to today, but because of an initial lack of government presence the recession evolved to a depression. This was a big turning point of the United States government when they learned that they needed more than just fiscal policies. The United States realized that monetary policies were just as important as fiscal policies. By having both fiscal and monetary policies it would help to prevent another disaster like the Great Depression.

» Read more: Fiscal and Monetary Policy, and How They Affect the Economy and You

Related posts

Revive Lincoln’s Monetary Policy – An Open Letter to President Obama

Dear President Obama:

The world was transfixed on that remarkable day in January when, to poetry, song, and dance, you gazed upon Abraham Lincoln’s likeness at the Lincoln Memorial and searched for wisdom to navigate these difficult times. Indeed, you have so many things in common with that venerable President that one might imagine you were his reincarnation in different dress. You are both thin and wiry, brilliant speakers, appearing on the national stage at pivotal times. Fertile imaginations could envision you coming back dressed in that African heritage you freed, to help heal the great scar of slavery and prove once and for all the proposition that all men are created equal and can achieve great things if given a fighting chance.

As Wordsworth said, however, our birth is but a sleep and a forgetting; and if that is true, you may have forgotten a more subtle form of slavery from which Lincoln tried less successfully to free his countrymen. You may have forgotten it because it has been omitted from our popular history books, leaving Americans ill-equipped to interpret the lessons of our own past. This letter is therefore meant to remind you.

» Read more: Revive Lincoln’s Monetary Policy – An Open Letter to President Obama

Related posts

UK Monetary Policy: Does it Work

The main instrument of UK monetary policy is the use of interest rates, set by the MPC. The theory is that interest rates are very effective in controlling inflationary pressures. The relative success of meeting the government’s inflation target in the past 7 years suggests that this proves the effectiveness of monetary policy.

In brief raising interest rates helps to reduce Aggregate demand in the economy. When interest rates are raised several things are affected. Firstly those with mortgages have higher monthly payments, this reduces their disposable income and reduces their spending. Secondly there is an increased incentive to save money rather than spend. Thirdly those who have other forms of borrowing will be hit with increased interest repayments, it will also discourage people from buying on credit. Therefore in principal raising interest rates will reduce demand and prevent the economy from overheating. This enables inflationary pressures to be subdued.

» Read more: UK Monetary Policy: Does it Work

Related posts