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Should monetary and fiscal policymakers try to stabilize the economy - Essay Example
One of the most debated of all microeconomics policy is if monetary and fiscal policymakers try to stabilize the economy. To some people the answer is simply yes, to others it is simply no, but the answer to the question is a little more complex than that.
Also, there is no reason to make people live through the ups and downs that is the business cycle as we know it, and monetary and fiscal policymakers can step in to try to balance out demand, and hence forth stimulate production and employment (Lecture 19). Some people may argue that this is only looking at the "short" run effects, and not taking into consideration the long term effects. Such people would not agree with monetary and fiscal policymakers interfering in the economy, they would rather see less big involvement and a monetary policy based on long term rules(The Short).
"Fiscal or monetary policy can be used to stabilize output and employment around their trend levels, and hence prevent booms or recessions from getting out of hand. When this domestic model is broadened to open the economy to international trade and capital flows, this conclusion no longer holds but the results depend on the flexibility of the nation's exchange rate."(Remarks).
In conclusion, after studying and reading several sources, I have decided that monetary and fiscal policymakers should try to stabilize the economy. This offers a solution to many economic problems, and can help prevent massive swings in our economy, which is always a good thing.