Expansionary Monetary Policy Essays - 1494 Words

Expansionary Monetary Policy Expansionary fiscal policy, such as the Chancellor of the Exchequer deciding to reduce the standard rate of income tax leads to higher aggregate demand and an increase in equilibrium income and output. In this essay I will examine the factors that are important in determining the macroeconomic effects should such a policy be installed by Gordon Brown (Chancellor of the Exchequer), and I will comment on any suggestions I may have for Gordon Brown in the preparation of his next budget with a brief description on the assumptions that my advice is based. Macroeconomic Goals Firstly I would like to examine the macroeconomic goals/aims of Gordon Brown and his fiscal policy. Fiscal policy is the†¦show more content†¦An increase in aggregate demand leads to an increase in the demand for labour shown as a shift from DL to DL1 which leads to increase in employment as a result of the wage rate increasing from 1 to 2. However, due to the natural rate of unemployment the supply of labour shown as SL, shifts to the right to SL1 where the wage rate is represented as 3 and employment returns to the natural rate. IS-LM Model This example of short run and long run aggregate supply and demand brings us straight into IS-LM Model. The IS-LM Model shows the combinations of both income and interest rates and shows how equilibrium is reached in both the goods and money markets. This model involves two schedules/curves, the IS curve and LM curve. The IS schedule shows the different combinations of income and interest rates at which the goods market is in equilibrium and the LM schedule displays the combinations of interest rates and income compatible with equilibrium in the money market. IS-LM schedule in equilibrium or the goods and money markets in equilibrium. The money market is in equilibrium at all points on the IS curve. The money market is in equilibrium at all points on the LM curve so only at point A are both markets in equilibrium. With the exception of a fall in interest rates, any factor that shifts the aggregate demand curve upwards, such as a decrease in income taxes will also shift the IS curveShow MoreRelatedExpansionary Fiscal Policy And Expansionary Monetary Policy1496 Words   |  6 Pagesmove the economy out of a recession, the government would implement expansionary economic policies. One action the government would take would include conducting expansionary fiscal policy. The other action taken would be conducting expansionary monetary policy. Both of these actions would have an effect on such things as money supply, interest rates, spending, aggregate demand, GDP, and employment. Expansionary fiscal policy consists of change in government expenditures, or taxes, in order inRead MoreThe Expansionary Fiscal Policy And The Monetary Policy2849 Words   |  12 Pageslean on the expansionary Fiscal policy and the monetary policy to regain money into the economy. Whether, a change in taxes or even government spending. Even to the three major tools of the expansionary monetary policy to focus on. In the first part of this paper, I will discuss the expansionary fiscal policy and how the Federal government was involved and the changes that needed to be made to taxes, government spending. The second part of this paper, I will discuss the monetary policy and the toolsRead MoreFed Expansionary Monetary Policy764 Words   |  4 PagesFed Policy Economists have been puzzled by the question of whether or not the Fed should begin its exit from expansionary monetary policy, primarily due to the reason that surrounds all policy change - there are benefits, and there are costs. The expansionary monetary policy essentially focuses on expanding the economy through increasing the GDP, and this is done through increasing output and employment through the lowering of interest rates. With the economy recovering slowly but surely, many economistsRead MoreThe Federal Reserve And Expansionary Monetary Policy1657 Words   |  7 Pagesgovernment 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. The best course of action to get the United States out of a recession is to use expansionary monetary policy. In order to properly explain the expansionary economic policies that the federal government engages in, it is important to understand the vocabularyRead MoreThe Impact Of Expansionary Monetary Policy During The Great Recession1720 Words   |  7 PagesThe 2008 Great Recession has been declared by the International Monetary Fund (IMF) as the worst global recession of the 20th century since the Great Depression [1]. After eight years, global economies today continue to struggle to find sustainable recovery and robust growth. The crisis was a massive institutional failure that involved the bursting of the asset bubble, the collapse of the stock market, and the moribund employment rate among others. The crisis has since triggered economists, governmentsRead MoreShould Feds Continue with Expansionary Monetary Policy or Exit Strategy?863 Words   |  4 Pagesconsumers spending. Based on the data given by the U.S. Department of Commerce today, the economy is now healing from the recession with the expansionary monetary policy. However, some people argue that it takes too long for the recovery to happen and suggests that it is time for the Fed to come out with an exit strategy. However, I think the Fed should stick with its policy because it manages to improve the economy. Therefore, I think the Fed should stay with their strategies until there is a clear evidenceRead MoreThe FEDs Expansionary and Contractionary Monetary Policies During and After the Economic Recession586 Words   |  3 Pagesthe concern that the expansionary monetary policy they used will quickly turn the recession into high inflation. This â€Å"exit strategy† can also be described as contractionary monetary policy and is going to be used to counteract the inflation sure to follow the economy’s recovery. Critics of this plan argue about when it should be implemented because it could make a recession worse or the inflation just as bad as the recession. The Fed has been using expansionary monetary policy to increase the moneyRead MoreFactors That Affect The Economic System1223 Words   |  5 Pages In monetary terms, a subsidence is delegated a moderate development or absence of development in financial movement; all together for the economy to escape the retreat, the legislature must execute expansionary monetary strategies. â€Å"The activities of government are grouped into three categories: allocation, redistribution, and stabilization. Stabilization and redistribution are conducted primarily through governments in all economic systems. Allocation is a microeconomic activity that is sharedRead MoreExpansionary Policy1254 Words   |  6 PagesExpansionary Fiscal and Monetary Policies Macroeconomics: ECO 203 Professor Charles Aki September 1, 2013 The US economy has seen some detrimental changes over the past decade. These changes resulted in unsubstantial unemployment rates, fluctuating interest rates, unstable GDP, and an increase in taxes. The federal government has an obligation to citizens to respond to the changes in the economy that affect each household. Expansionary Fiscal and Monetary Policies are economic policies usedRead MoreMonetary Policy On Economic Prosperity Essay1679 Words   |  7 Pages MONETARY POLICY CHANNELS BY MARTIN RIITHO MAINA KCA 14/02073 Term Paper submitted to Dr. G. Kosimbei in partial fulfillment Of the requirements for the course Monetary Economics, as credit towards The degree of Master of Science (Finance and Economics) KCA UNIVERSITY November, 2014 INTRODUCTION Monetary policy takes central part in discussions on how to promote low inflation and sustainable growth in the economy. Monetary policy operates as a tool to reduce prices during inflation and enhance