Ganesh Bala
Finals Essay Economics fall 2018
Q1: “If the US economy is doing well, both the Fed and the government may pursue tighter
fiscal and monetary policies. What are the objectives of such a policy mix? How might a tighter
fiscal and monetary policy mix be implemented? Will crowding out be a problem? Explain why
or why not. ”
It is to slightly reduce national income. The government wants to make sure that growth happens
without inflation. When inflation occurs, wages start falling. The Fed and the government
pursue tighter fiscal and monetary policies to reduce National income. This allows the economy
to grow at a smoother pace.
Tight monetary policy is implemented by reduction of the money supply. The government sells
treasury bills in order to achieve this. Financial institutions are main buyers of these treasury
bills. When the government needs money, it sells these bills. The Feds are also able increase the
Federal Fund’s Rate in order to increase the interest rates. This leads to a tight Monetary policy
as well.
Tight Fiscal Policy is implemented by cutting government spending, or increasing taxes,
increase in government spending, it is not going to happen.