Monetary and Fiscal Tools

This paper discusses the macroeconomic monetary and fiscal tools used by modern goverments, focuses on the U.S. during the 1930s and argues that these tools were successfully employed to control the economy.

Though governments have interfered to some extent in economic affairs throughout history, their active involvement as full participants in the course and flow of the economy in a phenomenon of the past four decades. In addition, their role as the chief determinant of national economic goals is of even more recent vintage; and indeed, revolutionary given the theory and practice from which it has grown. To say we have gone from laissez-faire to the New Economics in less than a lifetime oversimplifies both ends of the spectrum; but, the patterns established during the evolution seems to have become an integral and largely beneficial aspect of the modern American economic system.

This paper will examine the two most important macroeconomic tools of modern governments — monetary and fiscal policy — and …