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Using The Data And Your Knowledge Of Recent Economic Events, Assess The Contribution That Fiscal And Monetary Policies Can Make In Maintaining A Stable Economy

724 words - 3 pages

As stable economy is one which has low rates on inflation and unemployment and a steady rate of economic growth along with a current account stability. Fiscal policy involves the use of government spending and tax receipts to influence the level and pattern of economic activity, whilst monetary policy uses interest rates to achieve the same.

Fiscal and monetary policy can be used to influence short term Aggregate Demand with the aim of promoting a steady rate of economic growth, low unemployment and low inflation. In a recession there will be a loosening of monetary policy when interest rates are cut and a budget deficit run with the aim of boosting Aggregate Demand throughout the ...view middle of the document...

The macro economy can also be affected by supply side. Here events destabilise the economy and makes the use of fiscal and monetary policy difficult to be used in the economy. In recent years, There has been rising inflation which forced the government to look at deflating the economy, when at a time they should be reflationary policy. Also recent government fiscal policy has focused on balancing the budget and has meant cuts in government spending whilst at the same time raising some taxes. Again this could prove problematical with the economy slowly coming out of the recent recession, a cut in government spending which is cut in injections into the circular flow of income should lead to a fall in economic activity and economic instability.

In the long run, government uses fiscal and monetary policy to boost the supply side of the economy. If the supply side can grow, this will allow the trend rate of economic growth to rise which will boost economic stability in the long term. Such policies as spending government money on education and training will improve productivity and provide a...

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