How Fiscal and Monetary Policy can be used to address macroeconomic problem?

Answer 1

The Federal Reserve, or "Fed", can use monetary policy to influence the economy through the use of three tools, the most widely used being the use of open market operations, in which it buys or sells government securities. The more they buy from banks, the more money the banks will have, and the more loans they will be able to give out. If they sell securities to banks, the banks will have less money, and be less able to loan money, which would slow economic activity and decrease inflation in that now businesses and individuals will have less to spend, which would cause a downward shift in demand for goods and services. The Fed also uses its power to change what is known as the discount rate, or the rate of interest on money that banks have to pay back after borrowing from the Fed. This isn't used often, but can influence the bank's ability to loan money to businesses and individuals, which would affect economic activity and growth. The third tool it uses is known as the Reserve Requirement, and is a powerful tool at the Fed's disposal. This is the percentage of money banks are required to keep in reserve from deposits by account holders. The higher it is, the less money is available for lending, and the lower it is, the more money is available for lending. Monetary Policy, in a nutshell, is the use of tools by the Fed to influence the money supply to the public, and either encourage or discourage economic growth of the country as a whole.

Fiscal Policy is completely under governmental control, and uses two methods, taxation and government spending, to encourage healthy economic growth. Government spending lets more money flow through the system, and encourages growth, just as taxation does the opposite. It is based off of the economic theories of John Maynard Keynes, who first proposed that the economy hinged on the spending of individuals, businesses, and, most importantly to fiscal policy, government. The government uses its spending power to influence economic growth.

good luck in economics, by the way :P

Answer 2

A company can alter the monetary policy and fiscal policy in order to spur economic activity and foster growth. When there is very little saving, fiscal policies can be altered to entice the public to invest in treasury bills and take advantage of interest rates. Low bank rates also encourage people to borrow money and invest it.

Answer 3

Fiscal Policy: changing government spending or taxes to shift aggregate demand.

Monetary Policy: Fed controls interest rates and supply of money by buying or selling bonds, changing the reserve ratio, and/or changing the discount rate (rate at which banks lend to each other) i.e. Fed increases money supply by buying bonds --> nominal interest rate drops --> Investment increases --> aggregate demand increases