LEAH B. DOYDOY BSED SOCIAL STUDIES 3A MACROECONOMICS Insight Paper Create an insight paper on the questions/topic below. 1. Compare and contrast Fiscal policy and Monetary policy. Fiscal policy and monetary policy are both tools to use to expand or slow the economic growth. The main goals of these are to keep unemployment low and to curve inflation or slow the inflation rate. And when we say fiscal policy, it is the use of government spending and taxation to influence the economy. When the government increases the input, they lower the tax and increase the spending, which is called contractionary policy, while when they raise the tax and lower the spending, it is called contractionary policy. While monetary policy is the way central banks influence the economy through the management of the money supply and interest rates, these are money creation, managing the discount rate, and open market operations. Furthermore, when the circulation of money is low, it is called contractionary policy, while when the circulation of money is high, it is called expansionary policy. In general, in managing economic growth, governments utilize fiscal and monetary policies as essential tools. Fiscal policy involves adjusting government spending and taxation levels to influence the economy. An expansionary fiscal policy, characterized by increased spending and reduced taxes, aims to stimulate economic growth, while a contractionary fiscal policy, involving higher taxes and decreased spending, is implemented to curb inflation. On the other hand, monetary policy, conducted by central banks, focuses on regulating the money supply and interest rates. Expansionary monetary policy, involving actions like money creation and lowering interest rates, aims to boost economic activity, while contractionary monetary policy, characterized by reducing the money supply and raising interest rates, is employed to control inflation. In both cases, the overarching objectives are to maintain low unemployment rates and mitigate inflationary pressures, demonstrating the dynamic interplay of fiscal and monetary strategies in shaping the economic landscape. 2. How do governments all over the world use Fiscal policy and Monetary policy to control inflation? According to the provided video, it has been explained that fiscal policy and monetary policy are the tools used to expand or slow economic growth, and one of their main goals is to curve the inflation rate. How? We have the so-called contractionary policy, or the decrease of output. This means when the economy decreases output, it slows down. And the reason why the government wants to slow down the economy is to fight inflation as well. This contractionary policy is applicable to the fiscal policy, which happens when the government increases taxes and lowers spending. And it is also applicable to monetary policy, where it happens when the government does the money creation, manages the discount rate, and conducts open market operations that result in an increase in money circulation. Overall, fiscal policy and monetary policy control inflation through contractionary policy. In summary, the video underscores that fiscal and monetary policies serve as pivotal tools for managing economic growth, with a primary focus on curbing inflation. The mechanism through which this is achieved is the implementation of a contractionary policy, characterized by a reduction in output. Both fiscal and monetary policies can employ this strategy. In fiscal policy, the government increases taxes and decreases spending, while in monetary policy, it involves actions such as money creation, managing the discount rate, and conducting open market operations to boost money circulation. Ultimately, the overarching objective of both policies is to control inflation by deliberately slowing down the economy through contractionary measures.
