Answer to Question #17500 in Finance for Wiil

Question

What impact does current fiscal and monetary policy's have on the economy?

Answer 1

Thegovernment can enact fiscal policy changes or they can enact monetarypolicychanges.

Fiscal Policy - The power of the federal government to tax and spend in order to achieve its goals for the economy.

Monetary Policy - Programs that try to increase or decrease the nations level of business by regulating the supply of money and credit.

The goal of both policy options is increasing or decreasing the level of business activity. It is most always preferable to have a productive growing
economy but an economy can also be too productive. In that case the government
may enact policies to slow down the economy. Fiscal Policies include raising or
lowering of taxes. If we raise taxes we are taking money out of circulation.
When one considers the impact of taxes one must look at the sector of society being
impacted by the tax hike. Does it impact on the middle class, working class or
upper class. The powers of monetary policy often have immediate and forceful
impact so what it does is closely watched. Each policy has one basic goal,
impact the money supply. All of these policy actions work using the laws of
supply and demand. The more money in circulation, the more spending there is
and the higher inflation is. The less money there is in circulation, the less
spending there is, inflation decreases. Those policies that restrict the money
supply are known as "tight" and those that put more money into
circulation are known as "loose."