There are two main policies that a country can follow, which are fiscal policy and monetary policy. Fiscal policy is defined as policies that the government has enforced that influence the macroeconomic conniptions in the economy. The effects of fiscal policy can differ under certain exchange rates. Monetary policy, however is when a government authority, such as a central bank, will determine the growth rate and size of that particular country's money supply. Through this system, they can change the interest rates. A good example of this is the Federal reserve bank. With both of those policies, they can follow an exchange rate that will work best in accordance with their policies. Both of these policies will work differently under both floating …show more content…
The government controls and highly influences the macroeconomic conditions and overall economic standing. Fiscal policy under a fixed exchange rate regime will only boost the effects of fiscal policy (3). The government uses fiscal policy as a way to stabilize the economy and maintain interest rates. Under a fixed system, fiscal policy will gain and maintain more control over the money supply (2). Fiscal policy works well with a fixed exchange rate because the government has more control in determining the value of the currency, which can affect the interest rates. This is why fiscal policy has proven to be more effect and efficient under a fixed exchange rate. Fiscal policy proves to be ineffective and inefficient under a floating, or flexible exchange rate regime (3) When there is a rise in spending, there is an increase in the interest rates. When there is a floating exchange rate under a fiscal policy, the increase in interest rates would lead to a rise in the currency value. This will then decrease the net exports of an economy and worsen the effects of fiscal …show more content…
It is very ineffective under a fixed exchange rate. Since monetary policy requires a central bank, or some form of a board that regulates the money supply, you need a system where you can control the money supply by having more freedom in an exchange rate system and more capital mobility. A flexible exchange rate regime, or a floating exchange rate works well with monetary policy because there is more capital mobility and it is used as a way to stabilize an economy with an effective monetary system (3) . A monetary policy under a fixed exchange will especially not work well with an independent monetary policy, because it limits or eliminates the capital mobility in the exchange rate regime (2). It can have a negative impact on interest rates, and may reduce trade and have an overall negative effect on a country's economy. However, a fixed exchange rate may only work under certain conditions with countries that use a monetary policy system. Countries with monetary policy that have a high or low inflation rate and/or with a poor history of monetary policy could benefit from a fixed exchange rate regime (2). They could essentially partially associate their currency to another country's currency, whose economy is thriving under monetary policy, and they could effectively maintain the other countries monetary policy system as their own (2). This could substantially improve their overall
- What are the two primary mandates of the Federal Reserve? “…so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. ”[1] The two primary mandates, sometimes referred to as the Dual Mandate, would be maximum employment and stable prices. The goal of long-term interest rates is somewhat dealt with when an attempt is made towards stable prices.
All the Acts have an impact on the economy; however, in my opinion, the Federal Reserve Act plays an important role than the other Acts. It is the oldest Act compared to the others without any other Act and effective. They set the federal discount rate; which enables control to the availability and stability of money and banks in good standing can borrow money at discounted rate. So the Federal Reserve is responsible for the money supply. During the recession, they can lower the interest rate to stimulate the economy, making it favorable for banks as well as individuals to borrow money.
This gives government the ability to keep a steady balance in the economy. Another way the federal government can regulate money is by the monetary policy, which gives the government the ability to manipulate the money supply. As long as this power isn 't abused it can help restore order in the economy. Use what you’ve learned about the structure of Russia’s government and the power of its branches to describe how public
KSGET THE APP Fed vs anti feds - Kate Halm Kate Halm Government (online) Mr. Trenkle January 29th, 2018 Feds vs. Anti Feds During the late 1700s, the United States had battle between two opposing political systems, in which were to determine the ratification of the United States constitution. The most powerful politicians came together to determine the best for the ratification. The battle between the federalists and anti-federalists went back in forth to influence the power for the constitution.
Fiscal policy The level and composition of government spending and income (property, taxes and borrowings). 65. Foreign sector All institutions and countries outside a country’s border. 66. Recession A period where a country’s GDP took a fall in two successive quarters.
The Federal Reserve is the centralized banking system of the United States. It was designed to provide the US with a safer, more flexible, and more stable monetary and financial system (federalreserve.gov). The Federal Reserve uses various tools such as open market operations, reserve requirement, discount window lending, or quantitative easing when it comes to conducting the monetary policy. Even though some may argue on weather why they believe the Federal Reserve System is or is not beneficial to our economy, the Federal Reserve Act is still one of the most talked about laws concerning the US financial system today.
This policy also would increase consumer confidence and stabilize prices. Another pro is that by reducing government spending we can slow down inflation. The cons of the Restrictive Fiscal Policy are however that there is a slowing down of production. Due to the reduced money supply companies must cut back on their operations or manufacturing; this also leads to a higher unemployment rate. The reduction in the supply of money causes prices to lower and for there to be less of a demand…thus causing a reduction in economic
During inflation consumers will start to see the prices in goods and services to go up over a period. Monetary policies are when the central bank of a country determine the size and rate of growth of the money supply. After the central bank
I am amused by the answers provided here. The most amazing thing is no one have any idea about how economics work. I am not an economics expert, but this is the probably first thing you'll be taught in economics after demand/supply curve. Currency prices works like an index of prosperity in the respective nation.
Chapter 11 1. Fiscal policy can be described as the use of government purchases, taxes, transfer payments, and government borrowing with an objective of influencing economy-wide variables such as the employment rates, the economic growth, and the rates of inflation (McEachern, 2015). 1. When all other factors are held constant, a decrease in government purchases will lead to an increase in the real GDP demanded 2. An increase in net taxes, holding other factors constant, will lead to an increase in the real GDP demanded.
What are the main differences. The currency is not controlled by any banks and therefore
On the other hand the monetary policy is in charge of controlling the money supply and interest rates in time of booms and busts. But back to the topic at
The Keynesian Economics were very different than the Chicago School of Economics (CSE) in many different ways. The first was that they were both popular in different time periods. Keynesian Economics were established in the 1940’s, while the CSE was established in the late 1980’s. The Keynesian Economics laid the basis for the field of macroeconomics and treated the economy as a whole and focused on the government's use of the fiscal policy. The CSE provided a substantial part of the foundation for the intellectual reformation in the United States as well as around the world.
Central thesis – Indian states are not yet ready for full fiscal federalism. (Partial fiscal federalism may be beneficial, but full fiscal federalism might adversely affect economic health and well-being) I) WHAT IS FISCAL FEDERALISM WHAT IS IT?
The fiscal policy is primarily an instrument in the hands of the government whereby it estimates its revenues and expenditures in the economy. This is a very important tool as it would define the flow of money from different sources, indicating the level of activity in the economy. It also defines the broad policies of the government indicating the outwards flow of money in to different sectors of the economy to maintain the overall health of the economy and fulfill its social goals. Apart from the fiscal policy every country has monetary policy at its disposal.