Essay on Fiscal Policy And Monetary Policy

1690 Words Nov 16th, 2015 null Page
When the economy is in trouble and we need a solution. Economics problems and how those problems will be handled are a big concern. Everyone involved with the government and the economics has different opinons, such as every politician trying to get your vote by telling you their plans to change the economy and telling you how it will work. There are different ways of handling these issues. Fiscal policy and monetary policy are to solutions figuring out which one is the answer is always a challenge due to all of the different views and theories on economics. Fiscal policy which is controlled by the government and monetary which is controlled by the Federal Reserve.
From the research that I have done I understand that with expansionary fiscal policy, the first thing that is affected is the aggregate of demand. By keeping the tax rate constant and increasing government spending the demand will increase. After that the government raises household income by cutting taxes therefore the households have more money to spend, which the increase in spending will increase the demand. The problem with that is if households have more money to spend and the demand is high, the more products will be bought which is good, but then the surplus of the good goes down therefore making the demand higher do to the shortage of goods which will then increase the price of the goods.
Along with this fiscal policy will also change the aggregate demands composition. This happens “When the government…

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