Fiscal and Monetary Policy

                                                    Fiscal and Monetary Policy

Part 1 (Fiscal policy and monetary policy)

Fiscal policy deals with government expenditure/spending and income/earnings. The tools that are used in fiscal policy are taxes and spending.

What differentiates fiscal policy and monetary policy is that the control of the former is by the president and the congress and deals with spending and taxes while the latter deals with the purchase and selling of securities to regulate money supply in the economy.

As a member of congress, I think that the government should draft and enact laws that will ensure that there is a balance between the federal budget that will ensure less spending. Over expenditure by the federal government affects the economy negatively.

Scenario 1: The government is currently spending three billion, one hundred million on programs and brings in three billion, five hundred million through taxation.

• Does this create a budget surplus or deficit?  Explain.

3.5billion-3.1billion= 0.4billion

This budget creates a surplus. A surplus budget occurs when the amount of revenue or income generated by the government is greater than the expenditure..

• Would you recommend an “increase” or “decrease” to each tool (taxes and spending) to balance the budget? Explain

To balance the budget, I would recommend an increase in taxes. Increasing taxes will increase the amount of income to the government but would affect the economy negatively as people will be forced to pay higher prices for items and services.

Scenario 2: The government is currently spending three billion, seven hundred million on programs and brings in two billion, nine hundred million through taxation.  In addition, the nation has experienced a period of rising unemployment.

• Does this create a budget surplus or deficit?  Explain.

This creates a budget deficit because the amount the government is spending is more than the revenue generated by the government through taxation.

Would you recommend an “increase” or “decrease” to each tool (taxes and spending) to balance the budget? Explain

As a member of congress, I propose that the government should increase the taxes and at the same time reduce its expenditure.

• How might your efforts to balance the budget conflict with efforts to decrease unemployment, if at all?

Increasing taxation means that people will have to pay more for products and services. This will have detrimental effects on the economy, considering that the country has been going through a period of rising unemployment.

As a member of congress, my opinion is that the government should also reduce its spending even as it increases taxes.