Fiscal and Monetary Policy - Essay Example

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This paper differentiates between fiscal and monetary policies, and applies both in the context of a country in recession, in this case Japan. As the US Federal Reserve System Board of Governors notes, monetary policy is within the realm of control of central banking systems…
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Fiscal and Monetary Policy
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Download file to see previous pages From the study it is clear that in the United States, moreover, the existing mandate to the Federal Reserve Board emanating from Congress is for the former to promulgate fiscal policy decisions that will push employment numbers to the maximum as well as achieve stability in prices of goods and services.As the paper highlights separate from this general two-component mandate, however, the US Central Bank has autonomy with regard to the operational aspects of achieving those mandates, and that means that the US Federal Reserve Board has the independence to chart monetary policy without intervention from the US Congress. In contrast, when one talks about fiscal policy, one talks about things that relate to the way government raises revenues through taxation, in order to finance its activities in terms of government expenditures. As the name implies monetary policy refers to the policy, as controlled bank, pertaining to the amount of money in circulation in the economy. The mechanisms of control of the monetary supply, or the effecting of monetary policy include tweaking interest rates for loans, as well as tweaking monetary reserve requirements for banks. The end result is that the central bank can calibrate the amount of money n circulation by controlling these monetary policy levers. In times of recession, mostly, the central bank will try to lower interest rates to spur borrowing and also relax controls on money to increase the overall supply of money in the economy. ...Download file to see next pagesRead More
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