Major Debates Over Macroeconomic Policy: Small Details In The Economy That In The Long Run Bring Much Effects. (Term Paper Sample)

Major Debates Over Macroeconomic Policy Name Institution Introduction A range of unresolved macroeconomic issues exist and are key to political debates in the contemporary spectrum. These include the issues of zero-inflation target, tax incentives for savings, active monetary and fiscal policy, and increase in government spending to help fight recessions, as well as reducing the discretionary powers of federal governments. As such, there is the need to establish a proper understanding of the positions of both advocates and critics and determine the most appropriate one. The two issues that would be evaluated are active monetary and fiscal policy and increased government spending to fight recessions (Ryoo & Scott, 2017). Active monetary and fiscal policy Monetary policy encompasses the actions that the central bank of a nation takes to accomplish the macroeconomic policy objectives. Some central banks tend to target a particular inflation level. Several nations separate the monetary authority from outside the political influence hence undermining its mandate. Fiscal policy is the tax and spending policies that the government of a given nation incorporates. Restrictive fiscal policy occurs due to high taxes and reduced federal spending. Contrarily, an expansionary fiscal policy is ensured by reducing the taxes and increasing federal spending. However, it encourages economic growth (Arseneau et al., 2015). Advocates’ position In monetary policy, a small amount of inflation is considered healthy for growing economies since it encourages future investments. Moreover, it allows the workers to earn higher wages. Inflation occurs in situations where the prices of commodities in an economy increase. When the expected interest rate increases, the investment would be expensive thereby slowing economic growth. On the other hand, fiscal policy is beneficial in the sense that the taxing polluters would help remove the adverse effects caused in generation of government revenues (Ryoo & Scott, 2017). Critics’ position Regarding monetary policy, when the interests rates are too low, the rates of borrowing would be cheap thereby leading to over-borrowing. Consequently, this would cause speculative bubble as the prices increase quickly. When more money is added into the economy, the inflation levels would be out of control due to the premise of both demand and supply. In situations where more money is made available in the circular income flow of income, the value of each unit of money will be worth less when the demand level does not change. As such, the commodities priced would be highly expensive. On fiscal policy, the critics assert that government budgets deficits would show that such governments spend more money annually. High spending and low taxes widens the deficit to its dangerous levels (Nakata, 2016). The position I support I support the position of advocates since the monetary and fiscal policy tools help a nation to ensure the stability of its economic growth through low unemployment, low inflation and stable prices of commodities. When used effectively, the tools provide positive net benefits in the country by stimulating demand due to a crisis. Increased government spending to fight recessions The spending in private sectors drops during a recession. The demand for commodities also drops. As such, most of the private sectors restrict their investments on particular nations. The companies drop their rates of production hence laying off their workers. Moreover, as the businesses lay off employees, there would be less money spent. The government revenues drop substantially as the revenues come from taxes. Consequently, the unemployment rates increase as other issues like bankruptcies arise. Social issues might arise such as loss of personal dignity and extreme economic situations (Nakata, 2016). Advocates’ position Deficit financing by governments ought to happen in the economy during recession or depression. However, governments ought not to abuse it based on the aspect of tax reductions when the economy operates normally. Usually, most nations are successful when using deficit financing to enable them reduce economic depression impact. The deficit spending might not apply for enterprises and individuals. As such, there would be the need to inject the government funds without establishing an increase in the taxes. The governments should also encourage their spending to realize a positive impact on the economic outcomes. Spending needs to be ensured in projects that are labor-intensive such as education and communication setups (Baker, 2015). Critics’ position The tax revenues tend to increase substantially due to a positive riffle effect on the economy thereby not requiring debt financing at all times. In essence, due to increased economic activity, the tax revenues will increase. In such cases, the government should reduce its budget deficit. The taxes and interest rates need adjustments to enhance maintenance of health of economy, as well as ensuring a balance in the government budgets (Donadelli & Persha, 2014). The position I support I support the position of advocates since deficit spending is a good debt when the economy is...