Should monetary and fiscal policymakers try to stabilize the economy Intro: One of the most debated of all microeconomics policyis if monetary and fiscal policymakers try to stabilize the economy. To some people the answer is simply yes, to others it is simply no, but the answer to the question is a little more complex than that.
A case can be made for both sides of the argument. However, I feel that monetary and fiscal policymakers should try to stabilize the economy, for many different reasons.
First off, the economy is like an ocean, giving into the tides, and like the ocean, can have periods of recession. However, monetary and fiscal policymakers have the power to help combat this, and "With careful timing and proper actions, policy-makers can use monetary and fiscal stimulation to prevent recessions or at least minimize their severity" (Five Debates). Also, there is no reason to make people live through the ups and downs that is the business cycle as we know it, and monetary and fiscal policymakers can step in to try to balance out demand, and hence forth stimulate production and employment (Lecture 19). Some people may argue that this is only looking at the "short" run effects, and not taking into consideration the long term effects. Such people would not agree with monetary and fiscal policymakers interfering in the economy, they would rather see less big involvement and a monetary policy based on long term rules(The Short).
Even in politics is the battle between the two sides raged. Governor Edward M. Gramlich in a speech before the Wharton Public Policy Forum Series spoke about how
"Fiscal or monetary policy can be used to stabilize output and employment around their trend levels, and hence prevent booms or recessions from getting out of hand. When this domestic model is broadened to open the economy to international trade and capital flows, this conclusion no longer holds but the results depend on the flexibility of the nation’s exchange rate."(Remarks).
This also support my idea that if given the opportunity, monetary and fiscal policymakers should try to stabilize the economy.
In conclusion, after studying and reading several sources, I have decided that monetary and fiscal policymakers should try to stabilize the economy. This offers a solution to many economic problems, and can help prevent massive swings in our economy, which is always a good thing.
Five Debates Over Macroeconomic Policy, November 4, 2006 no author
Lecture 19, November 4, 2006, Kathryn Dominguez
The Short and Long of Economics November 4, 2006, Kaushik
Remarks by Governor Edward M. Gramlich, November 4, 2006 Edward M. Gramlich