Category: Economics

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Monetary Policy Goal

Monetary policy goal and Supply-side policies goals are crucial in facilitating an effective economic system. Monetary policy goals promote employment, price stability and foster economic growth. To restore the stability of the price, the president should influence the Federal government to conduct both monetary policy and contractionary policy as the initial measure. The government should then aim at maintaining high employment rates through the development of easy or expansion monetary policy (Mankiw, 2011). Fiscal and monetary policies are focused to control the demand market side and influence the aggregate economic activity. In an economic stagnation period, noted by the shifting of the Philips curve to the right, supply-side policies can be effective. The president should effect intervention by the government through public production. In such a situation, the government controls and own production means and national economic planning. It sets output goals and prescribes the usage of resources. This improves productivity and increase the net income. High productivity would ensure that adequate commodities are supplied to the market to meet the demand (Arnold, 2008).

Tax and Income Policies

In addition, the government may consider indirect interventions through developing tax and income policies. As a president, one should focus at reducing government spending particularly on luxury items. He should encourage an open economy, which has many advantages such as borrowing money from foreign countries to satisfy the budget, its citizens are allowed seek for employment in other countries and can trade shares, bonds and debentures with foreign countries. On the other hand, closed economy is disadvantageous because it has many restrictions such as trade barriers with foreign countries and cannot borrow from any country. Wages are an aggregate supply determinant where an increase influences a reduction of the short-run aggregate of the supply curve. Wages reduction results to an increase of the short run aggregate supply curve. The president should apply the tax multiplier to determine possible changes in aggregate production influenced by autonomous alterations in taxes. It can also be beneficial in analyzing the fiscal policy concerning taxes (Suri, 2011).

Budget Deficit

When a country faces a budget deficit and runs into high debts, several dangers might be encountered. For instance, the country is likely to experience a depression period where economic growth would be very low. The rate of inflation rises where high rate of unemployment results. It becomes difficult for the government to fund various public programs and project resulted to further loss of jobs. The policies discussed above can be implemented to revert the situation (Anderson, 2012).

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