Unit 2. Economic Stability

                                      Active Vocabulary 

circumstance                                          обставина

to have serious drawbacks                    мати серйозні недоліки

revenue                                                   прибуток

fiscal policy                                            фінансова політика

monetary policy                                     грошова політика    

tax receipts                                             грошові надходження від 

                                                                 оподаткування

budget deficit                                         дефіцит бюджету  

money supply                                         грошові надходження

Ever since the days of the Great Depression, the federal government has sought to stabilize the economy.     

To achieve these goals the government relies upon two sets of “tools” or strategies: fiscal policyand monetary policy.  

Fiscal Policy. Fiscal Policy is applied by changing the level of tax receipts relative to federal spending. It is the responsibility of the President and Congress because they control taxing and spending.

When taxes are reduced, individuals and business firms will have more money available to spend for the things they want. As business and consumers spending begins to increase, the economy will enter the expansion phase. If taxes are increased consumers and business would have less spend. This would create a contracting in the total demand for goods that should reduce infatuation.

Fiscal Policy has its Critics: many economists feel that when properly applied, fiscal policies can provide effective tools with which to fight recession and inflation. Others, however, believe fiscal policy solutions have several serious drawbacks.

When government reduces taxes to fight a recession, it often creates a budget deficit. That is its revenues will be less than its expenditures, and government’s debts will increase. When taxes are reduced, the government can still spend because it can borrow or print money.

If the government chooses to borrow from the public to offset a tax reduction, the money it borrows cannot be spent by the lenders.

The federal government can also finance its  debts by printing money.

Unfortunately, such increases in the money supply tend to fuel inflation by pushing up prices. For that reason a number of economists are opposed to      this strategy. Fiscal policies  must be timed so that they are applied at the      right moment.      

Monetary Policy. Monetary policy refers to regulation the supply of money as a way of stabilizing the economy.