Increased credit level translates to increase in household spending on consumer and investment goods. The increases in spending and investment level stimulate aggregate demand and thus returning the economy to full employment.
When this policy is applied, the rate of unemployment goes down as well since companies can borrow money easily to expand operations. Are you struggling to write your Assignment?
These two expansionary policies are aimed at increasing money supply in the economy. First of all, monetary policy can be defined as the process by which monetary authority controls the supply of money for the purpose to promote economic growth and stability.
For instance, an expansionary policy has lagging effects which are noted between the time the policy is implemented and when the effects are felt. During the recession, tax cuts or increased spending stimulates aggregate demand that in turn results in increased level of output.
The reduction in discount rate encourages private investment and consumption due to the available cheap credit. As a result, the price rises because consumers are competing for the products available which are offered to those who state the highest prices.
The decrease in the rates of interest causes more borrowers to access capital for investment. It is usually associated with high unemployment level, a decline in the stock market and in other sectors that drive the economy.
Business tax cut increases business investment on equipment, etc. Most of the funds will be used to pay the workers and provide revenue to suppliers of construction material. Central banks have to be open and thorough when making a decision on which of these two policies to implement as they can have adverse effects on the economy.
For instance, an expansionary policy has lagging effects which are noted between the time the policy is implemented and when the effects are felt. A reduction in the reserve ratio has a double impact on the money supply. Changes in the reserve ratio affect excess reserves Investopedia, Fiscal policy is under the authority of legislative body of federal government which is responsible to collect tax and spend revenues.
The main focus of expansionary policies in an economy during recession is an increase in aggregate demand and employment level eventually stimulating economic growth in terms of GDP.Expansionary monetary policies result in the increase in aggregate demand, GDP, and offset unemployment level.
The monetary policy tools objective is to increase the supply of money and to reduce the interest rate. The increase in money supply will increase the consumer spending power. Expansionary fiscal policy consists of change in government expenditures, or taxes, in order in influence the level of economic activity, inflation, and economic growth (Amacher & Pate, ).
Expansionary fiscal policy is when taxes are cut and government spending is increased. Expansionary fiscal policy works fast if done correctly. For example, government spending should be directed toward hiring workers. That immediately creates jobs and lowers unemployment.
Tax cuts can put money into the hands of consumers if the government can send out rebate checks right away. In an effort to move the economy out of a recession, the federal government would engage in expansionary economic policies.
Respond to the following points in your paper on the actions the government would take to address expansionary fiscal and monetary policies: Expansionary Fiscal Policy: Explain the actions the federal government. government can handle the economy in a recessionary period in one of two ways: expansionary fiscal policy or expansionary monetary policy.
The sector of the government that handles the economy using these policies in a recession is the Federal Reserve. Describe the actions the government would take in conducting expansionary fiscal policy and expansionary monetary policy. Expansionary Fiscal Policy: Review Chapter 7: Classical Macroeconomics and the Keynesian Challenge and Chapter 9: Taxes, Government Spending, and Fiscal Policy.Download