Problem
In the long-run, our economy continuously grows. Along this path of growth, there are periods of contraction that may lead to a recession or depression as well as periods of expansion that may lead to inflation-these fluctuations in the economy impact employment, prices, wealth, distribution of income, and stability. Given the harmful effects of the peaks and troughs in the business cycle, the government uses a variety of tools to prevent, and reduce, and recover from these extremes. For this assignment, you will apply the various fiscal and monetary policy tools that may be used to close deals with inflation and recession. As you work through the assignment, you will investigate relationships and differences between production growth, the financial system, unemployment, inflation, and economic stability.
Fiscal policy uses the budgets, taxes regulation, and emergency legislative actions to manage the economy. Although the President may propose budgets and regulations to manage the economy, it is Congress who establishes the federal budget, tax laws, and emergency legislative actions. The President does have veto power, but the actual fiscal policy legislation is the work product of Congress.
As an aid to a congressman, you are to provide
1) Identify and summarize three fiscal policy tools that the federal government may use to combat a recession. Explain how each tool may reduce the recession and how it impacts employment and growth.
2) Identify and summarize three fiscal policy tools that the federal government may use to combat inflation. Explain how each tool may reduce the inflation and how it impacts employment and growth.
3) Compare and contrast the difference in which monetary policy and fiscal policy maintain a stable economy and help promote economic growth and employment.