fiscal and monetary policy

fiscal and monetary policy - Christina Nassir ECO 111...

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ECO 111 Monetary and Fiscal Policy Paper The role of the government in the economy has not always been recognizable. In the beginning of American history the use of laissez-faire was utilized. This policy meant that the government did very little to interfere with the economic activity of the country. Not until the Great Depression of the 1930’s did the government begins to see how this policy heavily hurt the economy of the country. The government’s role in the economy is to manage and maintain high employment and stable prices. In order to accomplish these goals the government utilizes two tools to influence the economy: monetary and fiscal policies. These policies allow for prosperity and growth of the nation. Fiscal policies are employed by the federal government to influence tax and spending to help the economy, they include raising and lowering taxes. Unlike monetary policy, they are used in all stages of government. Fiscal policy refers to the way the government finances the provision of goods and services. There are two methods used in financing these expenditures: taxation and borrowing. Taxation includes taxation of personal and corporate income. Raising taxes normally slows down spending, economic growth and inflation. The federal government has three types of fiscal policy that can be used to stimulate the economy. They include increases in government expenditures, lowering taxes to stimulate the economy and a combination of both. Also the central bank can also create more money to help
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This note was uploaded on 04/07/2008 for the course ECO 111 taught by Professor Prof.kara during the Winter '08 term at West Chester.

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fiscal and monetary policy - Christina Nassir ECO 111...

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