Monetary Policy vs. Fiscal Policy
People always struggled with an idea of prosperity and success, whether it was a personal goal or whether it was something major - like wealth of a country. Nowadays, we are studying a science, which is really significant and valuable - Economics. Economics is a tool for achieving those goals, knowledge that people can use and imply in real life, and at the present time probably undividable part of governments' performances around the world. For us, students, there are two different matters we study - Macroeconomics, the study of the performance of national economies and Microeconomics, which focuses on the behavior of individual households, firms, and markets.
During the fall quarter of 2001, I was exposed to the basic ideas and uses of the Macroeconomics. Macroeconomics policies - government actions to improve the performance of the economy - are of particular concern to macroeconomists, as the quality of macroeconomic policymaking as a major determinant of a nation's economic health.
Monetary and Fiscal policies are two policies that we were concentrated on, and were the most significant part of the course for me. There is too much involved in these policies and they interact with each other consistently. I decided to write this paper, summarizing the basic functions of two policies, tried to explain what it is that makes them work, how effective these two policies can be, and how one relates to another.
In looking at the effectiveness of Monetary and Fiscal policies, it must be understood how the two relate to each other within the government structure. The Federal Open Market Committee - FOMC - is the most important monetary policy-making body of the Federal Reserve System. It is responsible for the formulation of a policy designed to promote economic growth, full employment, stable...