Monetary and fiscal policy Essay Example | Topics and Well Written Essays - 1250 words

Monetary and fiscal policy - Essay Example Increase in Government Spending-This policy helps in providing a lot of relief to the whole of the economy as this aspect helps in lowering the prices of the products or services resulting in stimulating the economy by a greater degree. It also ensures all round availability of goods to the consumers (Labonte & Nagel, 2007). 1. b.   What Monetary Policy Tools Can the Federal Reserve Use to Stimulate the Economy and Increase Economic growth. Please Identify At Least Two Specific Tools If the real GDP Gross Domestic Product is lower than the potential GDP, then there lay certain monetary policy tools that the Federal Reserve can use to stimulate the economy as well as to raise economic growth. These tools are discussed hereunder. Operations in the Open-Market-The Federal Reserve can effectively utilize this tool as it will improve the overall banking system in the United States (US). It will also help the Federal Reserve to maintain high level of reserves that will ultimately deliver significant benefits to the economy of the nation at large. Setting of Discount Rates-This particular monetary policy tool can help in facilitating effective stimulation of the economy along with raising financial growth by a certain degree. In this regard, discount rates are basically the interest rates that are charged while acquiring short-term loans from different financial institutions (Labonte & Nagel, 2007). 2. ... ariffs-This aspect can prove to be quiet effective as it tends to deliver effective as well as full flow of different economic activities in the nation. It also helps in conducting free trade and activities related to investment that directly benefits a nation’s profitability by a greater degree. Liberalization of imports-If the Fed desires to lessen inflation in terms of money supply, then the main focus is needed to be laid in the aspect of liberation of imports. This can be justified with reference to the fact that lowered rate of imports will tend to increase the level of conducting various economic activities but it would cut down the effects of inflation in a simultaneous manner. Reduction in Exports-If the level of exports is reduced, then inflation can be controlled by a certain degree. This is owing to the reason that this particular aspect will help in cutting down numerous costs that are associated with the exporting of finished products as well as raw materials to other nations. Formation of new and improved economic policies-The Fed can also adopt as well as implement this particular measure in curbing the unfavorable impacts of inflation and also helping an economy in mitigating the problems associated with high rate of economic fluctuations. In this similar concern, the new as well as the improved economic policies might include controlling wage rates and formulating effective tax reforms among others (Labonte & Nagel, 2007). 3. Both Monetary Policy And Fiscal Policy Encounter The Problems Of Lags. Discuss the Kinds of Lags They Encounter and the Degree of Difficulties They Present To Policymakers It is worth mentioning that monetary and fiscal policies help in developing an economy of a particular nation by a significant level. But, on the other hand,