Fiscal Policies Essay

270 Words2 Pages
What fiscal policies are required to fight unemployment? Which ones are required to fight inflation? What are some of the downside risks and potential problems involved when using fiscal policy? Fiscal policies are used to fight unemployment. The tools of fiscal policies include creating jobs through government programs that hire people in local communities. Also there are one-stop centers/workshops that train and assist the unemployed with their job search. Contractionary fiscal policies are required to flight inflation. Contractionary fiscal policies, with a goal of reducing output and aggregate demand, are an increase in taxes and a reduction in government spending. One problem with the fiscal policy is crowding out. Crowding out occurs when increases in government spending tend to cause reductions in private investment. What are the monetary policies required to fight unemployment? What about those required to fight inflation? What are some of the downside risks and potential problems involved when using monetary policy? Inflation, on the other hand, is best addressed through monetary policy, which is implemented primarily through the Federal Reserve Bank via manipulation of the money supply and of the prime interest rate. Raising the interest rate tends to have the effect of tightening the money supply and dampening spending (hence helping to control price increases/inflation). Lowering the interest rate tends to make money more freely available (e.g., through cheaper credit). Manipulation of the money supply and interest rates CAN, indirectly, help with job creation, but that is not its primary objective. Think of it as "indirect intervention" in the economy.

More about Fiscal Policies Essay

Open Document