January 10th, 2018
Macroeconomics: Government Policy Alternatives to Control Economic Outcomes
To control for adverse economic effects governments can alter their policies in accordance with existing economic conditions. Two types of policy alternatives that the government can employ to alter economic outcomes are the fiscal and monetary policies. Through these policies the government aims to control various activities such as spending, bank lending, employment level and prices of products. While the fiscal policy is concerned with setting the taxation and government spending levels, the monetary policy is used to control the supply of money to the economy (Colander, 2008).
The government policy interventions have however drawn diverse propositions from economists. Whereas some argue that these are important (the Keynesian economics approach) others – the classical economics – have opposed such interventions based on the adverse economic outcomes associated with them (Colander, 2008). This paper evaluates these policy options and how they are used to drive diverse economic outcomes. The history of these policy options is first presented then each of the policy is elaborated separately to inform on its usefulness in driving better economic outcomes. The paper also evaluates the concept of the multiplier effect and finally elucidates the monetary transmission mechanism. Go to part 2 here.