The national economy can be described as what keeps the nation working as a whole. Economists have figured four stages the economy goes through repetitively called the business cycle. This is used so they are able to predict an upcoming recession; also to see when the economy is expanding and by how much. Just like the government, there are two different sides to every theory on how things should be handled. This being rather how to improve the economy, or how to move the country out of a recession more quickly verses letting the system fix itself. Considering the events that took place in the 1930’s and the 1970’s really made the economists realize that economic stabilization was essential to keeping the nation afloat. By combining both sides
…show more content…
Monetary policy is made by the central banks or anyone else who might have control over the economic growth. This policy is used to monitor the growth of money, and achieve a stable economy as it grows; although as this increases it affects interest rates. The monetary policy is maintained by increasing or decreasing interest rates, and changing the amount of money banks are required to keep in their vaults. According to Investopedia there are two parts to the monetary policy, the expansionary, and contractionary. The expansionary stage is focused on lowering overall unemployment rates by increasing the money supply, also intensify consumer spending to spark economic growth. This approach is favored by many central banks because it is simple and draws little to no interest (Monetary). The contractionary is used to slow down the rate of growth of money supply; this is to control inflation in the economy. The down turn to this policy is it can boost unemployment, and slow economic growth. “An example would be the Federal Reserve’s intervention in the early 1980’s… This hike resulted in a recession, but did keep spiraling inflation in check” (Monetary). Fiscal spending is based on government spending. The government will use changes in taxes and increase spending to influence the economy. When the economy enters a recession the government …show more content…
The laissez faire or the “passive approach” believes that all should be left alone, letting it take its own path with the government interfering as little as possible. Example being the government will not increase or decrease taxes, or government spending. This approach was created by Adam Smith he was considered the “Father of Economics.” On the other side the Keynesian is weighted in as a strong conservative approach. It is focused on the short-run in economics, how to get the most done in the shortest amount of time. Also is created to control the total amount of spending in the economy. Blinder states that people who lean toward the Keynesian believe that “what is true about the short run cannot necessarily be inferred from what must happen in the long run, and we live in the short run” (Blinder). Showing that they only focus on what can be done right then to fix the economy, not worrying about the long run because they say, “in the long run, we are all dead”
Monetary policy is made by the central banks or anyone else who might have control over the economic growth. This policy is used to monitor the growth of money, and achieve a stable economy as it grows; although as this increases it affects interest rates. The monetary policy is maintained by increasing or decreasing interest rates, and changing the amount of money banks are required to keep in their vaults. According to Investopedia there are two parts to the monetary policy, the expansionary, and contractionary. The expansionary stage is focused on lowering overall unemployment rates by increasing the money supply, also intensify consumer spending to spark economic growth. This approach is favored by many central banks because it is simple and draws little to no interest (Monetary). The contractionary is used to slow down the rate of growth of money supply; this is to control inflation in the economy. The down turn to this policy is it can boost unemployment, and slow economic growth. “An example would be the Federal Reserve’s intervention in the early 1980’s… This hike resulted in a recession, but did keep spiraling inflation in check” (Monetary). Fiscal spending is based on government spending. The government will use changes in taxes and increase spending to influence the economy. When the economy enters a recession the government …show more content…
The laissez faire or the “passive approach” believes that all should be left alone, letting it take its own path with the government interfering as little as possible. Example being the government will not increase or decrease taxes, or government spending. This approach was created by Adam Smith he was considered the “Father of Economics.” On the other side the Keynesian is weighted in as a strong conservative approach. It is focused on the short-run in economics, how to get the most done in the shortest amount of time. Also is created to control the total amount of spending in the economy. Blinder states that people who lean toward the Keynesian believe that “what is true about the short run cannot necessarily be inferred from what must happen in the long run, and we live in the short run” (Blinder). Showing that they only focus on what can be done right then to fix the economy, not worrying about the long run because they say, “in the long run, we are all dead”