Monetary policy&fiscal policy - Assignment Example

Monetary Policy and Fiscal Policy Summary of the Monetary Policy Article Federal Reserve recognized that the rate of economic growth was not so fast and the central bank decided to continue purchasing bonds at the rate of $85 billion per month as offered in Fed’s program, as a way of stimulating the economy. Jim Zarroli from NPR in his explanation of whether the program has anything to contribute towards the direction of the economy declined to it having much contribution stating that the view of Fed in the economy is concerned about what has been for some time.

He views this as being middling. He notes in relation to this, the high unemployment levels despite the improvement in the labor market, and other cases such as high investment in business and household spending as well as low inflation levels. He then concluded with an admission of that things are improving though not at a fast rate. To the question of whether Fed’s statement had a relationship to government shutdown, Jim stated that what the statement meant was simply that fiscal policy has a role in restraining the economic growth.

He stated that government uncertainties such as the one in it’s spending and budget have caused the picture of the economy to remain unclear. To the question of whether the statement answered of when the federal reserve might decide to ease up on measures of stimulating growth, Jim answered that it did not and stated that there has been existence of fear in financial market, many thinking that Fed would lower its bond buying over the summer which did not happen (NPR Para 8).Interest rate money supply (MS) Money demand (MD)Quantity of moneyMoney supply is constant and therefore the supply curve is a vertical line.

Money demand curve on the other hand is negatively sloping. In case of low interest rates, people save less and hold more money. This result to high quantity of money held.Summary of the fiscal policy articleAnnouncement made from the white house stated that there would be rebates on household tax and cuts on business tax implying $6000 on individual and a doubled amount for couples jointly filing their taxes. Additional $300 per child would apply to families with children. The compromise did not offer satisfaction for either sides and this was brought up in a house meeting held.

President Bush defended the package as containing the right policies to increase consumer spending and business investments and that it recognized tax reduction as a way of helping businesses and consumers. The rebates would be applicable to 117 million people in America and would consider those who earn less as well as those who earn more and cut offs would benefit businesses that took new investments. It was however argued that the package did not consider unemployment benefits. This view was held by the democrats and different other persons held different opinions.

Loan and mortgage requirement standards would change which would facilitate acquisition of mortgage and low interest rates being offered on loans (NPR Para 10). AS Price level P1 AD1 AD2 Y2 Y1 outputThe graph shows a fiscal policy whereby increase in taxes results, or cutting government spending results to a decrease in aggregate demand from Y1 to Y2. This is a restrictive fiscal policy. AS represents the aggregate supply curve, AD represents the aggregate demand curve and Y represents output.

Work CitedNPR. Fed, Citing A Still-Struggling Economy, Will Keep Buying Bonds. (2013). Retrieved from: http://www.npr.org/templates/story/story.php?storyId=241903921NPR. Stimulus Plan Refunds $600 to $1,200 to Taxpayers. (2008). Retrieved from: http://www.npr.org/templates/story/story.php?storyId=18391644