What impact does current fiscal and monetary policy's have on the economy?
Thegovernment can enact fiscal policychanges or they can enact monetarypolicychanges.
Fiscal Policy - The power of the federal government to tax and spend in order to achieve its goals for the economy.
Monetary Policy - Programs that try to increase or decrease the nations level of business by regulating the supply of money and credit.
The goal of both policy options is increasing or decreasing the level of business activity. It is most always preferable to have a productive growing economy but an economy can also be too productive. In that case the government may enact policies to slow down the economy. Fiscal Policies include raising or lowering of taxes. If we raise taxes we are taking money out of circulation. When one considers the impact of taxes one must look at the sector of society being impacted by the tax hike. Does it impact on the middle class, working class or upper class. The powers of monetary policy often have immediate and forceful impact so what it does is closely watched. Each policy has one basic goal, impact the money supply. All of these policy actions work using the laws of supply and demand. The more money in circulation, the more spending there is and the higher inflation is. The less money there is in circulation, the less spending there is, inflation decreases. Those policies that restrict the money supply are known as "tight" and those that put more money into circulation are known as "loose."
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