MONETARY AND FISCAL POLICY 3
Running head: MONETARY AND FISCAL POLICY 1
Monetary and Fiscal Policy
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Monetary and Fiscal Policy
The economic decisions of governments can have a significant effect on even on big and advanced economies. This is because public sectors have a substantial share in the economy. Governments are also verified as topmost borrowers in the global debt markets. The government policies are ultimately depicted through its spending and borrowing (Auerbach, 2017). Monetary and fiscal policies are the significant guidelines that are used to monitor the spending and borrowing activities of most governments. This paper seeks to give more- in-depth insights into the concepts of monetary and fiscal policies that have the possibility of affecting the financial and macroeconomic markets.
The monetary policy infers to the central bank’s actions that are executed to impact the amount of credit and money in a specific economy (Gali & Monacelli, 2008). On the other hand, Fiscal policy infers to the decisions that are made by the government overspending and taxation (Sims, 2016). All in all, both fiscal and monetary policies are used to govern the economic activities over a specific period. For example, the recent tax cuts introduced by President Trump in the United States would affect the fiscal policy by reducing the tax rates, which may lead to future inflation. The Texas economy, for example, has been booming due to low-interest rates as a result of open markets operations, compared to other states.
In conclusion, the objective of both monetary and fiscal policy is to ensure an economic environment that supports sustainable and positive development, where the rate of inflation is truncated and constant. Importantly, the main goal is to provide guidelines to the current economy so that it does not have economic upsurges, leading to low development.
References
Auerbach, A. (2017). Fiscal policy. Peterson Institute for International Economics, Washington, DC. Retrieved From https://eml.berkeley.edu/~auerbach/Auerbach%20PIIE%20Draft%20Clean%2011%202%2017.pdf
Gali, J., & Monacelli, T. (2008). Optimal monetary and fiscal policy in a currency union. Journal of international economics, 76(1), 116-132. Retrieved from https://www.sciencedirect.com/science/article/pii/S0022199608000573
Sims, C. A. (2016, August). Fiscal policy, monetary policy, and central bank independence. In Kansas Citi Fed Jackson Hole Conference. Retrieved from https://www.igetweb.com/uploads/1575/filemanager/be86c36ea82e26503b67af5dd140038a.pdf