What is active monetary and fiscal policy and how does it help during recessions?

  

Select two subjects from the following list of topics and write a 1,050-word analysis:Active monetary and fiscal policyIncreased government spending to fight recessionsReducing federal government’s discretionary powersZero-inflation targetBalanced government budgetTax incentives for savingEvaluate both the advocates’ position and the critics’ position.Determine which position you support and defend your position.Cite a minimum of 3 peer-reviewed sources not including your textbook.Format consistent with APA guidelines.

Introduction:

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The economy is a complex system that operates on several parameters and factors simultaneously. The government plays a crucial role in overseeing and regulating various aspects of the economy like policies, taxation, budgeting, and creating employment opportunities. The government can adopt several policies to influence the economy’s direction: active monetary and fiscal policies, increased government spending to fight recessions, zero-inflation targets, balanced government budgets, and tax incentives for saving.

Description:

In this analysis, we will delve into two of the most prominent policies that affect the economy’s growth and development. One is the active monetary and fiscal policy used by the government to stabilize the economy during a recession or inflation. The other policy is reducing the federal government’s discretionary powers, which promotes a more significant role for the private sector in driving the economy’s growth. Besides, we will also discuss the balancing of the government’s budget, zero-inflation targets, and tax incentives for saving. We will evaluate advocates’ position and critics’ position and determine which policies are better suited for a particular economic environment.

Active Monetary and Fiscal Policy:

Active monetary and fiscal policy is a term used to describe the government’s intervention in the economy to stabilize it during a recession or inflation. When the economy experiences a recession, governments can use fiscal policies like increasing government spending and tax cuts to boost the economy’s growth. Additionally, the government can use monetary policies like lowering interest rates to make borrowing cheaper for businesses and consumers. Critics argue that such policies often lead to inflation and lower the value of the currency, leading to a decrease in investment from foreign investors. Proponents argue that such policies can help stabilize the economy and create employment opportunities.

Reducing Federal Government’s Discretionary Powers:

The federal government has vast discretionary powers in the economy that it can use to regulate several industries, including healthcare, finance, and energy. However, some economists argue that reducing the government’s presence in the economy can promote private enterprise and create more opportunities for innovation. Critics argue that reducing the role of the government can lead to increased income inequality and exploitation of the vulnerable in society.

Balanced Government Budgets:

Balancing the government’s budget has been a contentious issue in recent times as it involves finding a balance between revenue and government spending. Advocates argue that a balanced budget can create a stable economic environment, which can increase foreign investment. Critics, on the other hand, argue that such policies can lead to a decrease in government spending, which can affect job creation and social welfare programs.

Zero-Inflation Targets:

Zero-inflation targets are another policy used by governments to stabilize the economy. The policy involves maintaining a stable price level by controlling the money supply. Advocates argue that zero inflation can lead to increased investments, which can stimulate the economy’s growth. Critics argue that the policy can lead to deflation, which can make it harder for businesses to repay their debts and cause irreversible damage to the economy.

Tax Incentives for Saving:

Tax incentives for saving are policies that the government can adopt to encourage its citizens to save and invest. Advocates argue that the policy can help increase national savings and, consequently, spur economic growth. Critics argue that such policies can lead to tax evasion and provide loopholes that allow the wealthy to accumulate more wealth.

Conclusion:

In conclusion, the economy is a complex system, and several policies can be used to influence its growth and development. We have discussed two of the most prominent policies used by the government: active monetary and fiscal policy and reducing the federal government’s discretionary powers. We have also examined policies such as balancing the government’s budget, zero-inflation targets, and tax incentives for saving. By evaluating both advocates and critics’ positions, we can conclude that each policy is better suited for a particular economic environment. Ultimately, the government must adopt policies that promote economic growth and development while also ensuring stability and fairness for all sections of society.

Objectives:

1. To understand different policies implemented by the government to fight economic recessions.
2. To evaluate the effectiveness of active monetary and fiscal policy, increased government spending, reducing federal government’s discretionary powers, zero-inflation target, balanced government budget, and tax incentives for saving.
3. To analyze and assess the arguments put forth by both advocates and critics of these policies.
4. To determine a stance on which policy is most appropriate to fight economic recessions.

Learning Outcomes:

1. Students will be able to explain the different policies implemented by the government to fight economic recessions.
2. Students will be able to evaluate the effectiveness of active monetary and fiscal policy, increased government spending, reducing federal government’s discretionary powers, zero-inflation target, balanced government budget, and tax incentives for saving.
3. Students will be able to analyze and assess the arguments put forth by both advocates and critics of these policies.
4. Students will be able to determine their stance on which policy is most appropriate to fight economic recessions, supported with relevant and peer-reviewed literature.

Analysis:

Introduction:
The government of any country has several policies to combat economic recessions. In this paper, we will discuss some of the major policies used by governments during economic recessions. The policies include active monetary and fiscal policy, increased government spending, reducing federal government’s discretionary powers, zero-inflation target, balanced government budget, and tax incentives for saving. We will analyze and assess the advocates’ position and the critics’ position on each policy and determine which one is most suitable to fight economic recessions.

Active Monetary and Fiscal Policy:
Active monetary and fiscal policy is one of the most frequently used policies to combat economic recessions. It involves the intervention of the government to manage the economy by controlling interest rates, money supply, and government spending. The advocates of this policy argue that it is vital to maintain a stable economy and prevent economic recessions. However, critics argue that this policy can lead to hyperinflation, and government interference can negatively impact the free market.

Increased Government Spending:
Another policy is increased government spending. The government can increase its spending to create jobs, and it has a multiplier effect on the economy. The advocates claim that this policy is effective because it produces jobs, stimulating the economy, but economists argue that it leads to higher inflation, and debt levels can become unsustainable.

Reducing Federal Government Discretionary Powers:
Reducing federal government discretionary powers is a policy implemented by the government to limit its spending. The proponents argue that this policy can help establish a balanced budget and country’s financial stability. Critics argue, however, that this policy can negatively impact social welfare programs that are highly dependent on government funding.

Balanced Government Budget:
The balanced government budget policy aims to establish a balanced budget or surplus by reducing the country’s budget deficit. The advocates argue that this policy can lead to financial stability and prevent any accumulation of debt. Critics argue that it can lead to deflation and harm the economy.

Zero-Inflation target:
When the economy experiences recurring inflation, governments can set a zero-inflation target to maintain a low inflation rate. Supporters believe a low inflation rate is essential for steady economic growth. However, critics argue that it can lead to unemployment and negatively impact the economy.

Tax Incentives for Saving:
The government can offer tax incentives to encourage people to save money. Supporters argue this policy can generate savings and lead to economic stability. Critics argue that it leads to a decrease in consumption, leading to a decline in GDP.

Position:
After reviewing both positions regarding these policies, I believe that increased government spending is the most appropriate policy to fight economic recessions. Increased government spending has several advantages, including job creation, stimulation of the economy, and reducing income inequality. Critics argue that it contributes to high inflation and unsustainable debt levels, which is a valid point. However, the pros outweigh the cons.

Conclusion:
In conclusion, various policies have been used to fight economic recessions. Each policy has its advantages and disadvantages. The government must review and evaluate the effectiveness of each policy before implementing it. Increased government spending is one effective policy to fight economic recessions, although it can lead to inflation and debt accumulation. By assessing the pros and cons of each policy, we can be better prepared to weather future economic storms.

Solution 1: Implementing Tax Incentives for Saving

Tax incentives for saving are a policy measure that encourages individuals and businesses to save money by providing tax breaks for doing so. The advocates of tax incentives for saving believe that it can stimulate economic growth by increasing the amount of savings which can lead to greater investments, while the critics argue that it disproportionately benefits wealthy individuals and has negligible effects on increasing savings.

According to a study by Feldstein (1995), tax incentives for saving can increase national savings rates and help to reduce the trade deficit. Tax incentives for saving, such as 401(k) plans, individual retirement accounts (IRAs), and other saving programs provide incentives and enable individuals to save more of their earned income. With more savings, businesses could invest in new equipment and research which could lead to job creation, wage growth, and higher economic growth. However, critics argue that tax incentives disproportionately benefit wealthy individuals who pay a higher percentage of taxes, while low-income earners who do not pay a significant amount of tax cannot benefit from tax incentives (Moffitt, 2005).

Another study conducted by Weller (2003) suggests that tax incentives for saving have a negligible effect on increasing savings. This is because individuals who take advantage of the incentives were most likely to save regardless of the tax incentives. Additionally, low-income earners, who often do not have the extra resources to save for retirement, cannot reap benefits from the program and are often left out of the tax incentives system. Therefore, some critics argue that the government should focus more on increasing access to affordable housing, increasing wages, and creating more opportunities for low-income earners, rather than providing access to tax incentives for saving.

As a content writer, I support implementing tax incentives for saving as a solution to stimulate economic growth and increase national savings rates. Despite criticisms regarding the fact that tax incentives disproportionately favour high-income earners, it is essential to acknowledge that a more significant number of people benefit from tax incentives programs like 401(k) plans and Individual Retirement Accounts (IRAs) than those who do not. Additionally, a higher national savings rate can encourage job creation, wage growth, and ultimately lead to increased economic growth. I argue that the government should focus on implementing policies that enable more underserved and low-income earners to access these saving incentives and also encourage businesses to extend retirement saving benefits to all employees.

Solution 2: Increasing Government Spending to Fight Recessions

During a recession, many countries choose to implement expansionary fiscal policies that increase government spending, cut taxes, or both in order to stimulate economic growth. However, there are debates among economists on the effectiveness of expansionary fiscal policy in fighting recessions. Advocates of increasing government spending during recessions argue that it could increase employment, GDP, and consumer spending, while critics argue that it could lead to higher inflation, budget deficits, and debt.

Advocates of increasing government spending During recessions believe that it can boost economic growth by creating jobs and increasing consumer spending. According to the Keynesian School of thought, during the downturn of the economy, the government should increase its spending to create new jobs and stimulate consumer spending, which in turn would lead to an increase in GDP and economic growth. Studies by Alesina and Ardagna (2010) support this argument by showing that fiscal stimulus has been successful in the past, particularly in countries where it is implemented promptly and aggressively.

On the other hand, critics of expansionary fiscal policies argue that increased spending can lead to budget deficits and debt. They argue that it can drive up interest rates, lead to inflation and cause long-term damage to the economy. According to an article by the Wall Street Journal (2010), due to the expanded monetary policy, the interest rates could go up, which could lead to a decline in consumer and business investment.

As a content writer, I support the idea of increasing government spending to fight recessions. While there are challenges such as budget deficits, debt, and inflation, carefully designed policies can mitigate these issues. Additionally, as research indicates, in countries where fiscal policy is implemented promptly, it can lead to significant results like job creation and increased GDP. Therefore, the government needs to utilize expansionary fiscal policies to tackle recessions by investing in infrastructure, education, and healthcare while keeping a keen eye on the long-term consequences of increased government spending.

Suggested Resources/Books:

1. Active Monetary and Fiscal Policy:
– “Macroeconomics” by N. Gregory Mankiw
– “The Economics of Macro Issues” by Roger Arnold

2. Increased Government Spending to Fight Recessions:
– “The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy” by Stephanie Kelton
– “The Keynesian Revolution and Its Critics: Issues of Theory and Policy for the Monetary Production Economy” by Paul Davidson

3. Reducing Federal Government’s Discretionary Powers:
– “The Politics of Bureaucracy” by B. Dan Wood and Richard W. Waterman
– “Regime-Building: Democratization and International Administration” by Andrew Erdmann

4. Zero-Inflation Target:
– “Inflation Targeting: Lessons from the International Experience” by Mr. Carlos A. Végh Gramont, Mr. and Guillermo Calvo
– “The Optimal Rate of Inflation” by Marvin Goodfriend

5. Balanced Government Budget:
– “The Economics of Public Issues” by Roger LeRoy Miller
– “Public Finance and Public Policy” by Jonathan Gruber

6. Tax Incentives for Saving:
– “Introduction to Public Finance” by Harvey Rosen
– “Public Finance and Public Choice” by John Cullis and Philip Jones

Similar Asked Questions:

1. What is the role of monetary policy in economic stabilization?
2. How does government spending impact economic growth?
3. Is reducing the federal government’s discretionary powers beneficial for society?
4. What are the benefits and drawbacks of pursuing a zero-inflation target?
5. Should the government focus on balancing the budget or promoting economic growth?

Analysis:

Active Monetary and Fiscal Policy:
Advocates of active monetary and fiscal policy argue that the government should take proactive measures to stabilize the economy during times of recession or inflation. Fiscal policy involves government spending and taxation policies while monetary policy involves controlling the money supply and interest rates. Advocates of these policies argue that they can be used to stimulate economic growth and employment in stagnant economies. Critics of this position argue that government intervention can lead to inflation and market distortions. They also argue that the government is not capable of effectively managing the economy.

Increased Government Spending to Fight Recessions:
Advocates of increased government spending during recessions believe that government intervention is needed to stimulate demand and encourage growth. They argue that during times of economic hardship, private spending decreases, and government intervention is necessary to fill that gap. Critics of this position argue that increased government spending leads to deficits and debt, which can negatively impact the economy in the long run. They argue that instead of relying on the government to stimulate growth, the private sector should be allowed to drive economic growth.

Reducing Federal Government’s Discretionary Powers:
Advocates of reducing federal government’s discretionary powers believe that bureaucratic regulations can have negative impacts on economic growth and individual freedom. They argue that less government intervention leads to a more efficient market and a more prosperous society. Critics of this position argue that government regulations are necessary to promote safety and protect the environment. They argue that reducing regulations can lead to unbridled greed and environmental destruction.

Zero-Inflation Target:
Advocates of a zero-inflation target argue that monetary policy should be designed to keep inflation at zero, meaning that there would be no overall price increase in the economy over time. They argue that this promotes price stability and fosters long-term economic growth. Critics of this position argue that a zero-inflation target is unrealistic and that a slight degree of inflation is necessary to promote spending and investment. They argue that pushing for zero-inflation could lead to deflation and economic instability.

Balanced Government Budget:
Advocates of a balanced government budget argue that governments should not spend more than they take in through taxes. They argue that this promotes fiscal discipline and prevents debt from accumulating. Critics of this position argue that in times of economic hardship, government spending is necessary to stimulate demand and discourage recession. They argue that prioritizing balanced budgets over economic growth can be detrimental to society in the short term.

Tax Incentives for Saving:
Advocates of tax incentives for saving argue that the government should provide tax breaks to encourage people to save money. They argue that this leads to greater financial security for individuals and promotes long-term economic growth. Critics of this position argue that tax incentives for saving mainly benefit the wealthy and do not effectively promote savings among lower-income groups. They argue that a more effective approach would be to increase social programs that support savings for all income levels.

As a content writer, I support a balanced approach that takes into account the complexity of the economic system. The application of economic policies should be based on the specific circumstances of each country. In general, government intervention is necessary to promote economic stability and protect society from market failures. However, the effectiveness of government interventions can vary depending on the magnitude and type of interventions. Policymakers should be guided by sound economic principles when designing policies and aim to balance conflicting objectives.

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