Wednesday, April 22, 2009

stabilizing fiscal and monetary policy

we are know , an important function performed by modern governments involves the control of runaway price inflation and the prevention of chronic unemployment and stagnant growth. Two principle weapons are used: monetary and fiscal policy.
A central bank- which is a bank for banker and which is given the power to issue currency-either is directly in the executive branch of government or, more commonly, is a public not-for-profit organization ultimately responsible to the legislature. we shall study how our version of it, the federal Reserve banks and Board, exercise money and credit policies designed for high production and price stability.
Since the beginning of recorded history, governments have had constitutional authority over money. but only in the last 40 Years has it become generally recognized that fiscal policy of government-variations in public expenditure and tax totals, which create a surplus or deficit rather than a balanced budget-has profound effects on unemployment, total production, money and real incomes, and the level of prices. Bad fiscal policy can make the business cycle worse. Stabilizing fiscal policy can moderate the ups and downs of business. Now that governments are large, claiming to have no fiscal policy is like claiming to be dead: left to themselves, budgets will definitely not balance; a policy of trying to balance the budget in every month,year,decade, or over the whole business cycle involves deliberate (and rash!) social choice.

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