University:
Yeshiva University
Course:
1501 | Public Finance
Academic year:

2020
Views:

429

Pages:

2
Author:

Donavan Williams

Scenario 1: Economic Recession Monetary Policy: ● In the event of a recession, the Federal Reserve would likely adopt an expansionary policy. ● This could involve reducing the federal funds rate to encourage borrowing by individuals and businesses. Increased spending would spur economic growth and potentially lift us out of the recession. Fiscal Policy: ● Congress could increase spending on infrastructure projects such as building roads and bridges. ● This would create jobs and stimulate consumer spending, further aiding economic recovery. Evaluation: In the current economic landscape, both monetary and ﬁscal policies hold signiﬁcant importance, but monetary policy often yields quicker results. For instance, during the Great Recession, the Fed's decision to lower interest rates facilitated increased borrowing and economic activity faster than ﬁscal stimulus measures, such as the large stimulus package. Scenario 2: High Inﬂation Monetary Policy: ● To combat high inﬂation, the Federal Reserve would likely pursue contractionary measures. ● This might involve raising interest rates to discourage borrowing and spending, thereby cooling down inﬂationary pressures. Fiscal Policy: ● Congress could implement spending cuts to reduce the circulation of money in the economy. ● This reduction in demand could help lower prices and alleviate inﬂationary trends. Evaluation: In addressing inﬂationary challenges, the actions of the Federal Reserve tend to be swifter and more direct. For instance, during the inﬂationary period of the 1970s, the Fed signiﬁcantly increased interest rates to rein in inﬂation. While ﬁscal policy can also contribute, its implementation is often slower and subject to greater political complexities. Scenario 3: Sluggish Economic Growth Monetary Policy: ● In the case of sluggish economic growth, the Federal Reserve might opt for expansionary measures once again. ● Strategies such as quantitative easing, involving the purchase of long-term assets like government bonds, could inject liquidity into the economy and lower borrowing costs to stimulate growth. Fiscal Policy: ● Congress could enact tax cuts to provide individuals with more disposable income. ● Lower taxes typically lead to increased consumer spending, thereby bolstering economic activity. Evaluation: Both monetary and ﬁscal policies play crucial roles in revitalizing a sluggish economy. During previous economic downturns, the Federal Reserve's implementation of measures like quantitative easing helped inject liquidity, while Congress's enactment of stimulus bills, focusing on infrastructure investments, generated employment opportunities and encouraged spending. While both are vital, the Federal Reserve often possesses greater agility in responding promptly to economic challenges.