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The Monetary and Fiscal Policies

The priorities of the Biden-Harris administration as seen in the first link are representative of highly expansionary policies. Expansionary fiscal policy is characterized by tax cuts, rebates, increased government spending, and infusing the economy with money through deficit spending (Lumen, n.d.). This can be seen in the administration’s policy priorities as it seeks to invest in new technologies and infrastructure and focus on social equity in various forms (ranging from healthcare to racial equity) that would require costly policy reforms and investment into the economy (The White House, n.d.). This approach is supported by the Keynesian school of thought.

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Keynes who essentially created modern fiscal policy believed that governments could stabilize the business cycle and regulate output by modifying spending and taxes. Since aggregate demand from the private sector is volatile and dependent on emotional factors, government taxation and spending can be rationally managed to counteract the private sector consumption, leading to economic growth (Hayes, 2021).

The most recent meeting and decision by the Federal Reserve has also maintained an expansionary monetary policy. Expansionary monetary policy is defined by lowering short-term interest rates which helps to expand money supply as well as lowers benchmark federal funds rates, decreases required reserves for banks and buys Treasury bonds (Lumen, n.d.). These are all present in the latest statement by the Federal reserve, where they are maintaining the near-zero (.15%) interest rate and purchasing Treasury securities while keeping federal funds target range at 0 to 1/4 percent until labor market conditions reach maximum employment (Federal Reserve, 2021).

The school of thought applicable here is Monetarism as developed by Milton Friedman, which believes that the supply of money in an economy is the primary stimulant of economic growth. As supply increases, so does aggregate demand for good, which encourages job creation and by extent decreased rate of unemployment (Momoh, 2021).

References

Federal Reserve. (2021). Federal reserve press release. Web.

Hayes, A. (2021). Fiscal policy. Investopedia. Web.

Lumen. (n.d.). Expansionary and contractionary fiscal policy. Web.

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Momoh, O. (2021). Monetarism. Investopedia. Web.

The White House. (n.d.). The Biden-Harris administration immediate priorities. Web.

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StudyCorgi. "The Monetary and Fiscal Policies." January 17, 2023. https://studycorgi.com/the-monetary-and-fiscal-policies/.

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StudyCorgi. 2023. "The Monetary and Fiscal Policies." January 17, 2023. https://studycorgi.com/the-monetary-and-fiscal-policies/.

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StudyCorgi. (2023) 'The Monetary and Fiscal Policies'. 17 January.

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