Inflation Essay

1111 Words Dec 5th, 2013 5 Pages
Increase the GDP and Lower Unemployment
By: Danielle Sandlin

According to (http://www.investopedia.com/articles/04/051904.asp) Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply. These two policies are used in various combinations to direct a country's economic goals. Inflation is when the money supply increases faster than underlying economic growth, which is why the goal is to keep inflation low. Fiscal policy is not the typical measures to use to try to control inflation. Their impact on inflation is uncertain in many cases. The more
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Also give the Feds control on the lending policies of the banks allowing them to reduce the cash reserve ratio, reduce reserve requirement ratio and reduce discount rate, which will help with money supply. When the economy is in recession consumers and firms are in money demand. So people are holding onto their money because they need to buy important stuff, for emergencies, or for a later when the economy is on the rise again. There needs to be an increase in national income, which will cause people to buy stuff. Let’s assume money supply is set by Federal Reserve. If I was the Chairman of the Feds I would increase the money supply. One way of doing this is by buying bonds on the open market, this shift in money supply will cause interest rates to fall. A change in interest rates will positively affect how consumers and firms spend. This will allow firms to invest and for consumers to purchase goods, which will increase AD and grow the GDP. When the AD increases, output and price also increases, national income will rise, and decrease unemployment. The negative to this would be the Phillips, which is a historical inverse relationship between the rate of unemployment and the rate of inflation in an economy according to (https://www.boundless.com/economics/definition/phillips-curve/). It implies that more output implies more employment and higher

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