StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Fiscal and Monetary Policies in the USA - Essay Example

Cite this document
Summary
In the last few decades, the economy of the united states of America has experienced a relatively prosperous time and on the other hand, it has also encountered challenges. This paper will discuss the financial and monetary policies in United States of America and the impact on the economy. …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97.2% of users find it useful
Fiscal and Monetary Policies in the USA
Read Text Preview

Extract of sample "Fiscal and Monetary Policies in the USA"

Introduction In the last few decades, the economy of the united s of America has experienced a relatively prosperous time and on the other hand, it has also encountered challenges especially as a result of the depression that started in 2008. These differences in performance of the American economy are attributed to the monetary and fiscal policies that the country adopted. In the period that the country experienced economic growth, these policies are argued to have been rule based and predictable while in the period nearing the depression the policies were unpredictable and discretionary.

This tabloid will discuss the financial and monetary policies in United States of America and the impact that they have had on the economy. Monetary policy During the period before 2000, monetary policy in USA was less discretionary, more predictable and was focused on ensuring price stability of goods and services; this meant that the FED avoided growth in money and interest rates that had previously caused periods of booms and burst. In the recent past, this trend has changed and FED lowered the interest rates to abnormally low levels, which saw a large scale uptake of mortgages in the country.

With the change in monetary policies by lowering the interest rates, the rate of inflation started to rise, which forced FED to intervene; the level of intervention adopted by the authority was more tight than that which they would have adopted had they not reduced the interest rates. The tightening of the monetary policy caused panic among the investors, and moreover, the increase in interest rates also meant that the individuals who had taken up mortgage to finance their housing plans were unable to service the loans.

FED increased liquidity in the market to help the economy recover from the depression that a rise in interest rates had caused therefore stabilising the markets. FED did this by increasing the level of reserve balances and reducing the deposits that it requires commercial bank to hold. After the 2008 depression, United States of America has adopted a zero lower bound on the norminal interest rate as a discretionary intervention, in addition, the country has also embraced quantitative easing which includes large scale buy out of mortgages and treasuries (Taylor, 338).

Fiscal policy The government of the United States of America has been spending more than it earns, this has the effect of increasing the debt levels in the country. In the recent past this debt has risen tremendously leading to the country’s debt levels reaching alarming levels which needed intervention. The country’s fiscal policy has deviated from investing in public goods, which may increase competitiveness in the economy and focussed more on other sectors such as Medicare, which represent entitlement (Havard business review, 114).

The tax regime in the country has also done nothing to improve the situation since the corporate tax code ensures that high levels of taxes are levied but the revenues do not increase significantly. In addition, there is mortgage interest deduction, which has worked to ensure that money that would be more productive in other areas of the economy is tied to the housing sector. In the recent past, the US government has adopted a countercyclical and expansionary fiscal policy where government spending has been on the rise during economic downturn, for instance, the 800 billion dollars stimulus package that the government enacted in 2009.

However, this stimulus package was cancelled out by some states, which reduced their spending in order to balance budgets therefore neutralising the effect of the stimulus package. The government has also changed the tax regime with temporary tax cuts for some individuals below a certain income threshold set to expire on 31st December 2012 being extended permanently. This increases the amount of disposable income for people in the income bracket and hence money available for investments. Fiscal and monetary policy in the US economy have to be implemented concurrently in order to achieve the desired macroeconomic climate.

In monetary policy, changes are implemented promptly while fiscal policy is a legislative process that takes a relatively longer time to be implemented. In coming up with fiscal policy, some information may be required for them to be effective in dealing with the specified macroeconomic variable, this information may be got through monetary policy whose effects are seen within a short time (Rossi and Zubairy, 1251). Conclusion Monetary policy in the US has mainly been to maintain stability in interest rates and money markets while on the other hand the fiscal policy has been aimed at increasing revenue for the government while encouraging investments.

These two forms of policies in the US work together to in ensuring macroeconomic stability Works cited Havard business review. Macroeconomic policy and competition. Havard Business Review. (2012). Print Rossi, Barbara and Zubairy, Sarah. What Is the Importance of Monetary and Fiscal Shocks in Explaining U.S. MacroeconomicFluctuations. Journal of money credit and banking. Vol 43(6). P1247-1270. (2012). print Taylor, John. B. Monetary policy for the past 30 years with lessons for the next 30 years.

Cato Journal. Vol 33(3). P33-345. (2013). Print

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Fiscal and Monetary Policies in the USA Essay Example | Topics and Well Written Essays - 750 words”, n.d.)
Fiscal and Monetary Policies in the USA Essay Example | Topics and Well Written Essays - 750 words. Retrieved from https://studentshare.org/macro-microeconomics/1494087-fiscal-and-monetary-policies-in-the-usa
(Fiscal and Monetary Policies in the USA Essay Example | Topics and Well Written Essays - 750 Words)
Fiscal and Monetary Policies in the USA Essay Example | Topics and Well Written Essays - 750 Words. https://studentshare.org/macro-microeconomics/1494087-fiscal-and-monetary-policies-in-the-usa.
“Fiscal and Monetary Policies in the USA Essay Example | Topics and Well Written Essays - 750 Words”, n.d. https://studentshare.org/macro-microeconomics/1494087-fiscal-and-monetary-policies-in-the-usa.
  • Cited: 0 times

CHECK THESE SAMPLES OF Fiscal and Monetary Policies in the USA

IMF (International Monetary Fund) from 2007 to present using international business perspective

have reduced the dominance of usa as they are following the same footprint (Hill, 2010).... For example, share of FDI of the companies of developing world have increased from less than 1 percent in 1980 to as high as 15 percent in 2008, while the share of usa based companies have declined from near 40 percent in 1980 to 18 percent in 2008(approximately) (Hill, 2010).... In fact, it is helping this process of change by its policies.... This paper will place its focus on some important issues relating to IMF policies and its scandals since 2007 as IMF activities is closely related to the performance of international businesses....
5 Pages (1250 words) Research Paper

How Monetary and Fiscal Policies were Implemented during the Recession

The monetary policies can be either the contractionary or the expansionary objective.... It is the mandate of the federal reserve of the United States to enact the monetary policies.... This was achieved by using some monetary and fiscal policies.... The aim of the expansionary policy increases the total supply of money in the economy, while the contractionary policies decrease the supply of money in the economy.... In order to curb this, the government of the United States, and the international monetary fund, took some micro and macroeconomic measures to curb this trend, which led to a great economic down turn....
4 Pages (1000 words) Essay

Major Areas of Behavioural Finance

There are many different types of root causes behind the recessions or financial crisis took place mainly in the developed countries in usa and United Kingdom and spread in the world economy.... Behavioural Finance final Table of Contents Introduction 3 Relation of economic crisis with public sector 3 Effective theories of public policy 4 Modern monetary Theory 4 Mosler's Law 5 Reverse Ricardian Equivalence 5 Role of public policy to counter crisis 6 Reference 8 Introduction This paper deals with one of the major areas of behavioural finance....
5 Pages (1250 words) Essay

The Effect of an Increase in the Money Supply

Money was invented as a medium of exchange and to ease trade Question 5 Federal Reserve is a politically formed formal organization in usa which implements monetary system.... Expansionary fiscal policies have a short and long term impacts on the aggregate economy as well as on the balance of the federal budget.... In the commodity monetary system, money supply usually adjust automatically to the monetary needs while the supply of and demand for money usually react simultaneously through the prices for services and goods in the market in order to determine the specified quantity of money....
3 Pages (750 words) Essay

Assignment 2: The Fiscal and Monetary Policy and Economic Fluctuations

Both fiscal and monetary policies have a way of affecting the economy either positively or negatively.... This factor has encouraged borrowing in the usa leading to more expenditure by the public.... The fiscal and monetary Policy are two of the most used tools by governments all over the world to make sure that a country's economy does not take the wrong direction.... Department of commerce: Bureau of Economic Analysis; personal expenditure was about 9800 usa dollars in the year 2009 and has increased over the past few years to 10600 usa dollars in the year 2012....
4 Pages (1000 words) Assignment

Federal Fiscal Policies of the U.S

The country also adopted a policy to the effect that wealthy Americans will have to pay even more Fiscal policies in response to the recent financial crisis, the U.... om/2013-03-22/business/sns-rt-us-usa-economy-growthbre92l03o-20130321_1_easy-policy-monetary-policy-monetary-stimulus weebly.... om/news/articles/SB10001424127887323977304579002181871240044 Project descriptionFind a recent article that covers fiscal policies of your own country or another country....
1 Pages (250 words) Assignment

Economic policy in the USA

More specifically, explain how fiscal and monetary policies are tools that the government can use to help the economy.... In the paper “Economic policy in the usa” the author analyzes how the founders of the government divvy up responsibility for economic policy, what theoretical tenets have guided economic policy, and how has economic policy evolved over time.... There is an increasing campaign for healthcare insurance and other healthcare related policies that seek to mitigate the emerging conditions like obesity among others....
2 Pages (500 words) Essay

Macroeconomic Environment of Business - Limitations of the Use of Fiscal Policies

In order to support the aggregate demand, the need of the time is aggressive monetary policies.... This paper "Macroeconomic Environment of Business - Limitations of the Use of Fiscal policies" focuses on the global financial crisis which stretched its hands on what is regarded in today's world as “Great Recession” which had serious impacts on the economic stability and fortunes of many countries.... The need is to analyse the effects of discretionary policies on the severity of recessions....
7 Pages (1750 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us