Expansionary fiscal policy was put into place to help stimulate the economy in the event or possibility of a recession. The fiscal policy helps narrow or close the gap by stimulating the economy and increasing jobs. The Expansionary monetary policies focus more on boosting the money flowing throughout the economy with the right amount if interest decrease. The reasoning for the monetary policies is to help fix the business-cycle contraction and focus on unemployment. Both fiscal and monetary policies help each other by attempting to bring an end to recession. Fiscal policy stimulates the economy by expanding aggregate demand and expenditures through raising and lowering taxes or by increasing government spending (Amacher & Pate, 2012). The expansionary fiscal policy steers towards a larger government budget deficit or a smaller budget surplus (Carol, 2013). The federal reserve bank uses three tools when conducting monetary policy which are; required reserve ratio, the discount rate, and open market operations.
The expansionary fiscal policy …show more content…
Bank reserves are what the Fed’s use to fund Treasury securities, then in turn leads to a raise in the overall quantity of reserves that the bank keeps. Banks are often loan the excess reserves at a reduced rate, which then increases the banks currency supply (Amacher & Pate, 2012). Then the Feds give a discounted or reduced amount that would be close to the interest amount credited to commercial banks for reserve loans (Carol, 2013). The Federal security system was designed to help out commercial banks on the verge of bankruptcy by giving them the reserve loans. The Federal Reserve Banks decide the discounted rates for these type of loans and then they have to be approved by the Board of Governors. Differences with the discount rates are equivalent to additional monetary policy activity in practice (Weil,
The expansionary fiscal policy …show more content…
Bank reserves are what the Fed’s use to fund Treasury securities, then in turn leads to a raise in the overall quantity of reserves that the bank keeps. Banks are often loan the excess reserves at a reduced rate, which then increases the banks currency supply (Amacher & Pate, 2012). Then the Feds give a discounted or reduced amount that would be close to the interest amount credited to commercial banks for reserve loans (Carol, 2013). The Federal security system was designed to help out commercial banks on the verge of bankruptcy by giving them the reserve loans. The Federal Reserve Banks decide the discounted rates for these type of loans and then they have to be approved by the Board of Governors. Differences with the discount rates are equivalent to additional monetary policy activity in practice (Weil,