A policy is a desirable way of conduct as officially expected by a government or authoritative body of a certain place in order to guide the decisions made for the achievement of reasonable results. Policies can either be objective or subjective, and it is a factor that depends on the field in which they are applied and who has control over them. There are policies that are concerned with the economy, including monetary policy and fiscal policy (Drobyshevsky 2018). Fiscal policy is the use of revenue collected by the government and its expenditure to influence the economy of a country. Fiscal policy is mostly used to stabilize a place’s economy due to the cycle of business. Monetary is a process whereby the body that controls the currency of the country, such as the central bank, controls the cost of short-term borrowing, mostly aimed at interest rates or inflation rates. The two policies are tools mostly used to influence the economic activities of a nation.
The monetary economy has been used to check on the economy of a state and gear up or check on its growth. Monetary policy has always been an incentive for people and even businesses to borrow money and spend it (Scharpf 2018). Monetary policy takes control of issues related to an overheating economy by acting as a stop to inflation and an incentive to save. Money is pulled out or injected into the economy by a monetary policy known as open market operations. By creating reserve requirements, the Federal Reserve influences the amount of money made by financial institutions.
Fiscal policy is a goal aimed at the government, its standard of spending, and all things involved in the spending or the two to the economy. Fiscal policies are largely influenced by government spending policies and government tax policies. The government can increase the amount of money it spends if it believes that the business activities in its economy are not enough, an act known as stimulus expenditure. If the tax received is not enough to cover the spending the government borrows, The government can slow down business activities by increasing the tax or speed up business by lowering the taxes in pursuit of increasing economic growth. Before money is spent or taxes increase, a choice is always made to find the most suitable place to do the two, be it a specific industry or specific goods. Fiscal policies are, in most cases, subjective and raise debates between observers and economists.
Both monetary and fiscal policies affect the economy of the United States differently and are effective in different sectors. Fiscal policies will be more effective for expansion and making the real economy better. On matters dealing with the expansion and financial economy of a country, monetary policy is the best approach. Fiscal policies always have a positive effect as they lead to an increase in income earned and employment opportunities available. It also leads to increased revenues, which benefit companies. The fiscal economy can, however, lead to inflation if the economy is almost full (John H 2018). The margins of some companies may be eaten away if the industries are competitive and unable to pass costs to customers. The market may become too disorderly and create asset bubbles due to the effect of fiscal policy. Monetary prevents deflation and economic collapse and hence has no big impact on the real economy of the United States. Monetary policy is not able to make any expansion and contraction of the money supply, which will, in turn, influence growth and inflation. Monetary policies in the United States have brought about psychological benefits in economic instances.
Fiscal and monetary policies have influenced the economy of the United States in both objective and subjective ways.
References
Drobyshevsky, Sergey, et al. “Fiscal and Monetary Policy.” Russia. Palgrave Macmillan, London, 2018. 169-181.
Cochrane, John H. “Stepping on a rake: The fiscal theory of monetary policy.” European Economic Review 101 (2018): 354-375.
Scharpf, Fritz W. Games real actors play: Actor-centered institutionalism in policy research. Routledge, 2018.
