Essay on Six Debates over Macroeconomic Policy - 1363 Words

SIX DEBATES over MACROECONOMIC POLICY SIX DEBATES over MACROECONOMIC POLICY ISSUES | YES | NO | 1. Whether or not monetary and fiscal policymakers should try to stabilize the economy | Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put†¦show more content†¦Increased spending on investment adds to aggregate demand and helps to restore normal levels of production and employment.Fiscal policy, on the other hand, can provide an additional tool to combat recessions and is particularly useful when the tools of monetary policy lose their effectiveness. When the govern ment cuts taxes, it increases households’ disposable income, which encourages them to increase spending on consumption. When the government buys goods and services, it adds directly to aggregate demand. Moreover, these fiscal actions can have multiplier effects: Higher aggregate demand leads to higher incomes, which in turn induces additional consumer spending and further increases in aggregate demand.Traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes. When the government gives a dollar in tax cuts to a household, part of that dollar may be saved rather than spent. The part of the dollar that is saved does not contribute to the aggregate demand for goods and services. By contrast, when the government spends a dollar buying a good or service, that dollar immediately and fully adds to aggregate demand. | Critics of spending hikes argue that tax cuts can expand both aggregate demand and aggregate su pply and that hasty increases in government spending may lead to wasteful public projects.Tax cuts increase aggregate demand by increasing household’s disposable income, asShow MoreRelatedThe Study of Macroeconomics1507 Words   |  7 Pages†¢ Micro vs. Macro †¢ Microeconomics – the study of how individual households and firms make decisions and how they interact with one another in markets. †¢ Macroeconomics – the study of the economy as a whole. – Its goal is to explain the economic changes that affect many households, firms, and markets at once. †¢ The Two Groups of Economists †¢ Macroeconomists †¢ Focus on the economy as a whole. †¢ Spend much time analyzing how total income changes and how changes in income cause changes inRead MoreAn Informal Link Between The Level Of Financial Intermediation And Economic Development1631 Words   |  7 PagesImportant Banks (SIBs) of Sri Lanka, are the main contributors for an efficient and stable financial sector. Hence, a study on the determinants of the IRS of SIBs of Sri Lanka is vital to understand the process of financial intermediation and the macroeconomic environment in which that the banks operate. 2. Statement of the problem IRS of banks is one of the main variables that measure the efficiency of a banking sector. High IRS can generate negative consequences in the economy, since there is anRead MoreThe Change Of The East India Company Monopoly1478 Words   |  6 Pagespleased would have their course closed. Finally, prior to his death, about a year or less, Say was given a political economic chair at the France College. Say was for the thought that, his discipline should have the name â€Å"social economy,† as economic policies, and economic laws impacted the society as a whole. Even though he was not feeling well in his last years of life, Say was still productive and was still writing, overseeing and lecturing the fifth version of his famous book ‘Treatise whichRead MoreThe Inequality Of Poverty And Deprivation Throughout The World1368 Words   |  6 Pagesonly part of the story, and depending on the place and the time period in question, it may not be the most important part of the story. It may be that other policies, in addition to redistributing income directly, have a vital role to play in reducing inequality. In the past year, there has been something of a revival of the public policy debate on inequality of income and wealth, a welcome development in light of the alarming trends of the past few decades. Thomas Piketty’s brilliant work, CapitalRead MoreGovernment Involvement Of Fiscal And Monetary Policies1431 Words   |  6 PagesStudy Governments make use of different macroeconomic policy instruments such as fiscal and monetary policies to stabilize the macro-economy and brig about growth to their respective countries. Yet there are debates on the efficiency of each of these instruments. The extremity in the debate is to the level that some economists arguing ineffectiveness of fiscal and monetary policies in all countries. There is another group who regard them as important policy tools, while they agree that their effectivenessRead MoreThe International Monetary Fund ( Imf )1310 Words   |  6 PagesIn the last chapter we looked at how incompetent and politically driven economic policy making drove Europe into prolonged recession and high unemployment. The financial crises and fear of a meltdown slowed world economic growth considerably. In October 2010, the International Monetary Fund (IMF) projected 4.6 percent growth for the global economy in 2013; it ended up being just 3 percent. This difference may not seem like much, but in terms of lost output it is more than $800 billion, and it isRead MoreMacroeconomic Policies Of Fiscal And Monetary Policies Essay1387 Words   |  6 Pagesmake use of different macroeconomic policy instruments such as fiscal and monetary policies to stabilize the macro-economy and brig about growth to their respective countries. Yet there are debates on the efficiency of each of these instruments. Some economists argue that fiscal and monetary policies are ineffective in all countries while the other group argue that they are important policy tools, though their effectiveness depends on conditions in the economy. Fiscal policy is one of the commonlyRead MoreThe Economic Crisis Of The G202112 Words   |  9 PagesPittsburgh Elevation in September 20 09 to institutionalize the Chemical group of 20 leaders ’ summit reflects a marked shift in the locus of leadership. New players, new meeting place and new issues have moved to the center of global decision-making. Over the course of its first class, the G20 has delivered in response to global economic challenges, at least in a declaratory fashion. However, as we move towards a billet crisis environment, the G20’s follow-on year will bring new challenges. In the lead-upRead MoreUnequal Distribution of Wealth Essay1487 Words   |  6 Pagesgreat depression. In my opinion, many of our countries problems stem from the unequal distribution of wealth. Wealth is unequally distributed in today’s society The unequal distribution of wealth is seen as a negative and ongoing problem and debate within American politics and society. There is a great deal of evidence to back up why wealth distribution is damaging the American ideals of life. It also carries inevitable and undetermined consequences for our nation. How resources are distributedRead MoreSources Of Income For Individuals Developing Countries1498 Words   |  6 Pagesdeveloping economies in the last decade have grown by about six folds, from $56 billion in 1995 to $334 billion in 2010 (Kanu and Ozurumba 2013). Given its size, stability and countercyclical behavior in the face of external shocks, policy attentions are now focused on mobilizing remittances to leverage growth and poverty dividends as well as utilizing it to cushion the impact of economic shocks (World Bank 2010). There has been a growing debate on how the often voluminous migrant remittances are used