Economic Equilibrium

Essay # 102965

Economics > Macro

This paper describes the way economic equilibrium is achieved through adjustments of fiscal and monetary policies.

895 words () | 6 sources | MLA | 2008 United States

Paper Summary:

This paper explains that economic equilibrium can only be achieved when an effective balance between supply and demand, income and consumption and stasis in the current account is achieved. The author points out that the two economic policy engines--fiscal policy and monetary policy-do not work in conflict but rather in tandem. The paper relates that fiscal policy is the responsibility of the federal government; whereas, the responsibility for monetary policy rests with the U.S. central bank structure and is directed by the Federal Reserve Chairman. The author underscores that monetary policy is designed to increase gross domestic product (GDP) and to control inflationary pressures in the long-term; whereas fiscal policy is aligned normally with principles of short run economic growth while controlling long term economic expansion associated with overheated economic activities.

Table of Contents:
Introduction "3 Issues"
Opposing Viewpoint
Conclusion

From the Paper:

"In order to control the monetary balance, the Federal Reserve has several forms of financial transactions and adjustments that directly affect the money supply. The most obvious one would be a mortgage. Every time that a lending institution approves and disburses a new mortgage it is effectively expanding the federal supply of money. Yet, the Federal Reserve also affects a change in the supply of money indirectly every time it adjusts the Federal Funds rate."

Sample of Sources Used:

Cencini, A. Monetary Macroeconomics: A New Approach. London: Routledge; 2001.
Cleaver, T. Economics: The Basics. New York: Routledge; 2004.
Faux, Jeff. "Take Back the Tax Cut." Economic Policy Institute, (2002).
Gale, William and Peter Orszag. "Bush Administration Tax Policy: Effects of Long-Term Growth." The Brookings Institution, (2004).
Orszag, Peter. "Marginal Tax Rate Reductions and the Economy: What Would be the Long-Term Effects of the Bush Tax Cut." Center on Budget and Policy Priorities, (2001).