Macropoland Essay

Tags: interest rates economics money central bank inflation government economy debt

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Macropoland

The tools of expansionary monetary policy are: open market operations and controlling the funds rate. Open market operations would allow the central bank to buy treasuries. The central bank would be increasing the money supply by purchasing government debt, and by purchasing government debt it would help to create demand for the debt and thereby keep yields low, which would allow the government to keep borrowing and spending on projects to help stimulate the economy or boos infrastructure or do whatever was required. The central bank could also lower the funds rate, which would allow interest rates to come down across the board, incentivize borrowers to spend more or to make big purchases—such as housing or new cars—and thereby help to stimulate the economy as well (Balance).

Expansionary fiscal policy would be conducted by the government and would include lowering taxes while simultaneously increasing the amount of money the government spends on projects to help stimulate the economy, get people working, and get businesses investing in the nation.

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Expansionary fiscal policy and expansionary monetary policy go hand-in-hand, as the government wants to spend more so needs to issue more debt, which the central bank can readily buy as it controls the money supply and can simply issue new money to buy the debt. The only problem is that if the central bank creates too much new money too quickly, it can lead to inflation which can hurt businesses and consumers. However, by lowering taxes for citizens, they would theoretically have more money to spend so they would not be too bothered by inflation, so long as it does not get too high.

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Works Cited

Balance. “Expansionary Monetary Policy.”
https://www.thebalance.com/expansionary-monetary-policy-definition-purpose-tools-3305837

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