Discussion C: Monetary Policy and Fiscal Policy Essay

Discussion C: Monetary Policy and Fiscal Policy Essay

Discussion C: Monetary Policy and Fiscal Policy Essay

Explain the differences between Monetary Policy and Fiscal Policy?

Both monetary and fiscal policies are tools used to influence economic activity either helping to encourage or curb economic growth. Monetary policy refers to the activities of central banks aimed at influencing the supply of money and credit in an economy (FED, 2017) Monetary policy is independent of the political process. Central banks have several tools for influencing money supply in the economy such as reducing or increasing interest rates, influencing the requirements for bank reserves, or regulating the number of federal bonds needed to be held by banks. These affect the amount that can be lent by banks which influences the supply of money in the economy.  Monetary policy helps to control inflation, maintain long-term interest rates, and manage employment levels (Bernanke, 2020).

Fiscal policy on the other hand is the government’s decisions about taxation and spending aimed at influencing aggregate demand in the economy to spur healthy economic growth (FED, 2017). Fiscal policy decisions are political processes determined by Congress and the Administration. Fiscal policy has only two tools for use in influencing aggregate demand; taxation and spending (Blinder, 2016). While monetary policy impacts exchange rates and housing or property markets, fiscal policy influences government budget and national debt.

Do you agree or disagree that establishing a job evaluation process in an organization ensures that employees are fairly compensated?

Which policy do you think is best at stabilizing the economy during a recession or continue GDP decline?

Monetary policy is more effective at stabilizing the economy during a recession or a continued GDP decline. The objectives of a monetary policy are to; attain or maintain a high economic growth rate, maintain full employment, and stabilize prices and wages. Recession has to do with money supply and prices and since monetary policy can restrict growth in the money supply, it can help stabilize the economy during a recession. Since it is also free of political influence, it can attain its objectives without undue political interference (Fischer, 2016). Recessionary periods require urgent actions to return stability which can only be done by the monetary policy which is quicker to implement as compared to fiscal policy.

Discussion C: Monetary Policy and Fiscal Policy Essay