Monetary And Fiscal Policy In Macropoland

Monetary and Fiscal Policy Name of Student Institutional Affiliation Date of Submission Introduction Macropoland has been experiencing a recession which is an economical decline leading to a drop in income, GDP, retail sales, manufacturing and employment. Our country’s unemployment rate is high reading at 9%, consumer demand is low and this has been marked by sluggish consumption thus affecting investment negatively. Inflation has reduced to 0.4% which is way low than the 2% recommended for a stable economy. In order to stimulate economic growth in Macropoland, I recommend use of expansionary monetary policy and expansionary fiscal policy tools to enable the economy recover from the recession. Expansionary monetary policy lowers bank interest rates and thus increasing demand CITATION Kim18 \l 1033 (Amadeo, 2018). Expansionary fiscal policy on the other hand is a form of fiscal policy where the government increases money supply by reducing taxes and increases its expenditure, this way, citizens have more money to spend and eventually boosting the economy CITATION Fis16 \l 1033 (Fiscal Policy, 2016). Discussion Expansionary monetary policy will boost the economy of Macropoland in two ways, first, the central bank can buy treasury notes from its banks and replace it with credit. This allows the banks to lend at low rates to its clients, hence increase borrowing and this will boost the reduced investment and consumption demand. This is a technique that has been used by the U.S Federal reserve to boost its country’s economy. With increased investment companies can hire more employees and raise their incomes, on that account the consumer demand increases since the employees can now afford more. The central bank through the treasury notes replacement reduces the interest rates of credit cards, ergo people can spend more consequently boosting the economy to about 2% to 3% CITATION Kim18 \l 1033 (Amadeo, 2018). Secondly, funds rate can be lowered through open market as stated by Amadeo. The central bank of Macropoland requires its banks to deposit a given amount of money every night, this way banks without enough money can borrow from those with excess at a given fee called the fund rate. When the ce...