Fiscal and Monetary Policies for Economic Stimulation and Growth

This report examines how governments employ fiscal and monetary policies to stimulate economic activity and foster growth. Fiscal policy, involving government spending and taxation, is explored, highlighting how increased spending can boost demand, production, and employment, while tax increases can curb an overheating economy. Monetary policy, focusing on manipulating money supply and interest rates, is discussed, emphasizing its influence on aggregate demand, inflation, and economic cycles. The report provides examples of expansionary fiscal policy during recessions, and it contrasts the effectiveness of fiscal and monetary policies, particularly in the UK. The analysis includes references to academic sources, discussing the impact of these policies on employment, investment, and overall economic performance.

Explain using examples from your own
research how Governments use both fiscal and
monetary policies to stimulate economic activity
and growth using tr

Table of Contents
How government uses fiscal and monetary policy to strength economic activity.................2
REFERENCES...........................................................................................................................4

How government uses fiscal and monetary policy to strength economic activity
Fiscal policy is the government’s decision with regards to spending and taxing. In this
situation, the government wants to stimulate the growth in economy, it will increase the
spending for a goods and services, as a result, it increase the demand for goods and services.
Hence, increase in the production need more employees in a company to employed and that is
why it affect the economy of the country in positive manner (Dallari and Ribba, 2020). On
the other side, when the production is slow, it affect the profit and as a result, there will be
less hiring and business investment. Thus, it slows down the economy of the country and
affect the growth as well. So, if the government wants to slow down the overheating
economy, it decide to raise the tax, which means that people has less money to spend which
in turn lower down the economy.
Monetary policy measured employed by the government in order to influence
economic activity, by manipulating the supplies of money as well as credit by altering the
rates of interest, so its main aim is to increase the aggregate the demand and economic
growth of a country (Nakata, 2016). So, when there is a decline in interest rate, then it affect
the financial institution to supply the funds at low interest rate and that is why, it reduce their
lending rates and loans to the firm as well. On the other side, monetary policy is also
influence the inflation as well as economy and if there is an increase in the interest rate, this
financial institution is also provide the fund at high interest rate. So, household find it
difficult for borrowing the funds which also makes economic activity slow, as a result, it
exerts the downward pressure on prices.

As per the above graph, it is stated that expansionary fiscal policy which creates directly
impact upon the jobs and economic activities in UK by injecting the demand into an
economy. Saiz-Alvarez and Calleja-Leal (2020) argued that expansionary fiscal policy is
necessary in a recession and it is so because the excess private sector saving which also arises
due to paradox of thrift. Also, this enables unused saving to be used and also idle resources to
be put into work. During recession, fiscal policy is more effective as compare to monetary
policy because government pay for new investment schemed that helps to provide
employment opportunities, while monetary policy indirectly encourage the business to invest.
So, monetary policy is widely used by the government in order to grow the economy
because making minor changes to interest rate is simplest way that affect economic cycle.
While fiscal policy is politically unpopular as well so, the increase in cost of borrowing will
lead to slow down the economic activity of UK.

REFERENCES
Books and Journals
Dallari, P. and Ribba, A., 2020. The dynamic effects of monetary policy and government
spending shocks on unemployment in the peripheral Euro area countries. Economic
Modelling. 85. pp.218-232.
Nakata, T., 2016. Optimal fiscal and monetary policy with occasionally binding zero bound
constraints. Journal of Economic Dynamics and control. 73. pp.220-240.
Saiz-Alvarez, J.M. and Calleja-Leal, G., 2020. Fiscal Policy and Social Optimization for
Developing Nations: Some Thoughts in the Digital Era. In Handbook of Research on
Social and Organizational Dynamics in the Digital Era (pp. 292-304). IGI Global.