Fiscal & Monetary Policy
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There are two methods that can be used to control (or at least to influence) the American economy: fiscal and monetary. Fiscal policy is that used by the government to levy taxes; its effect on the economy is to stimulate or slow down the economy by increasing or decreasing the amount of money available for investment and spending by varying the tax rate. The higher the tax rate, the lower the amount available for discretionary spending; conversely, the lower the tax rate, the higher the amount available for discretionary spending and the greater the stimulating effect on the economy.However, there are political problems with fiscal policy, namely, voters are reluctant to elect politicians who promise tax increases (witness George Bush's problems with his backing down from "no new taxes"). This has led to increase interest in monetary policy as a way to influence the economy. Monetary policy is largely controlled by the Federal Reserve Board (Fed), which can determine the interest rates that member banks pay each other and which is charged to banks for overnight borrowing. When interest rates are increased,
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Approximate Word count = 755
Approximate Pages = 3 (250 words per page)
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