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Econ211 Unit 3

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Principles of Macroeconomics ECON210 -1601B-10 Instructor: Kunsoo Choi Unit 3- Fiscal Policy and Government Spending Amanda Kranning March 6, 2016 Fiscal Policy and Government Spending Part 1: Assuming that the country (United States) is in a period of high unemployment, interest rates are at almost zero, inflation is about 2% per year, and GDP growth is less than 2% per year. Then the fiscal and monetary policy can be applied to move the numbers to acceptable levels while keeping inflation at the lowest level. As the chairperson of federal, I will focus on reducing the unemployment rate. The desired effect will only be brought by fiscal policy together with monetary policy. However, the fiscal policy will be implemented immediately …show more content…

Keynesian economics suggests that increasing government spending and decreasing tax rates are the better ways of stimulating aggregate demand, and reducing spending and increasing taxes after the economic boom begins. For this case, the federal government will increase its spending up to the point where the inflation starts to rise while unemployment has decreased to lower levels. For the economic growth to be attained at a preferable rate, then the government should spend on public such construction of roads, incentives to producers and provision of essential services to producers for them to thrive. The expenditure will indirectly trigger the producers to produce thus leading to attainment of desired economic growth while keeping inflation at a low …show more content…

According to the policy, the provision of money in the economy as an effect of increasing or decreasing the inflation rate, thus, the side effect of money supply on the economy can be monitored and the inflation effect associated with the policy should be check by reducing the money supply to the economy (Hoag & Hoag, 2006). . The demand and supply of money in the economy depends on the interest rate of the country. An interest rate of almost zero suggests that the demand for money in the economy by investors is slight. Thus, the production of the economy is very small. From the supply side means the economy is full of money already therefore the policy necessary by monetary is to reduce the money supply by raising interest rate of the central bank and selling treasury bills and treasury bonds to the public. However, the policy alone is not sufficient to attain economic growth and consequently needs to be used with fiscal policy at the same time. .The implementation of the policy, however, are in these steps. Firstly, the supply of money in the economy is reduced because it can be done overnight by raising the interest rate. This, however, leads to slow economic growth in the short run. Then secondly, the issuance of treasury bills and treasury bonds which will also reduce

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