Solving the Economy

Sufiyan Hadi



Fiscal policy involves the government changing the levels of taxation and government spending in order to influence Aggregate Demand and other economic activity. This is mainly used in the times of recession. It helps to keep inflation low. The overall purpose of fiscal policy is to avoid the quick drastic changes either for the better so boom or for the worse so bust. Any sudden change in the economy can have a negative impact to the other sectors of the economy so this policy is used to make sure it does not happen.


Monetary policy is basically controlling the amount of money "out there" to control the overall economic stability. This can be done with the use of interest rates. The reason that monetary policy is used so commonly is because it not only helps control inflation but also production and growth. The way that it is able to control both of these aspects is because of its long term and short term affects. In short term it is able to affect the production of various good and in the long run it affects prices.


The Classical way of solving problems in the economy says that we should let everything happen on its own and not bother with it. the reason for that is there is a perceived way of the economy that it is self correcting. If something goes wrong then eventually it will fix itself.

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