Role of Monetary and Fiscal Policies. Development

Seminar paper from the year 2020 in the subject Economics - Macro-economics, general, Arba Minch University, course: Development Theories and Policies, language: English, abstract: Methodologically, this paper is based on theoretical and empirical narrations about the theories, experiences, and workings of monetary and fiscal policies. How monetary and fiscal policies are in work, what are the existing theories about these policies, and evaluation of their practical cases based on various case studies conveys the major methodological components of this paper. Contemporary macroeconomic theories postulate that, macroeconomic policy focuses on limiting the effects of the business cycle to achieve the economic goals of price stability, full employment, and growth. Monetary and fiscal policies are usually considered as the two sets of tools to implement macroeconomic policy. Both forms of policies are used to stabilize the economy, which can mean boosting the economy to the level of GDP consistent with full employment. According to Cochrane, the primary mandate of macroeconomic policy is the achievement of stability and sustainable growth. Conventionally, there are two leading players responsible for these economic policies. The Fiscal agent, whose main objective is to achieve full employment of resources, and the monetary agent who seeks to maintain price stability. While both fiscal and monetary policy ultimately aims at achieving sustainability, economic theory holds that the monetary and fiscal policy objectives are not mutually exclusive. Also, the existence of two autonomous policy agents raises an environment where policy makers have room to pursue conflicting objectives.