Unit 6 Scenario B-2 Essay Example | Topics and Well Written Essays - 500 words

Unit 6 Scenario B-2 - Essay Example This memo will also highlight the differences between monetary and fiscal policies, what are the pros and cons associated with each type of policy? Is either policy more effective in increasing output growth or stabilizing inflation and unemployment? With reference to the tax changes, a decrease in the tax rates would help achieve the desired increase in output.i.e lower the tax rates more people will buy meaning the demand will be high and so the output would be high .this decrease in tax rates would further imply an increase in the equilibrium price, the output and the unemployment rate. Furthermore if we analyze, we can foresee the following Pro’s and Con’s of the situation discussed above; pro’s being the fact that the unemployment rates will decrease the Marginal Propensity to consume (MPC) and the Gross Domestic Product (GDP) will Increase subsequently. One very serious aspect which is a definite Con; the governments Tax Revenue will decrease. The changes in open Market operations to achieve the desired increase in output would imply the following: the central bank will increase their government securities, people will spend more and thus the output will rise. This flux will then imply the following trend; an increase in the equilibrium price, an increase in the output and a subsequent decrease in the unemployment rate. Elaborating on the relationship between the deficits and national debt, we would like to mention the fact s that need to be considered here .In order to understand how both national debt and deficits go hand in hand; A budget deficit will imply an increase in the size of the national debt, only by the amount of the deficit .Conversely, if there is a budget surplus it will allow the government to pay off the bond holders thus reducing the size of the national debt. The difference between the monetary and fiscal policy is obvious as by monetary policy is meant all actions that a government takes to control the