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In conclusion, the basic economic principles from the Keynesian era dictate that changes in the monetary and the fiscal policy directly impact inflation and unemployment. The reason for this is that an increase in money supply means that there is more currency in the market. This in turn leads to more spending which drives up the prices of goods. This can be understood in the context of basic supply and demand. As such, the government’s failure to address these basic problems shows that the government can indeed be held accountable for such crisis.

This relation to unemployment, however, is quite different and may depend on many factors. Simplistically speaking, however, unemployment can be reduced by a change in either monetary or fiscal policy that encourages the growth of small to medium scale businesses. By decreasing interest rates, the money supply increase thus allowing individuals and firms more access to capital that is need to run their own businesses. One way to look at this problem in the real world setting is to discuss the impact of such in relation to the current economic stimulus that the United States government has planned.

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As shown by certain researchers, the projected loss of jobs and increase in unemployment rate is not necessarily affected by any economic stimulus package. This is the reason why the question on whether or not the package should be higher is not really relevant. Loss of jobs can be attributed to the economic fundamentals of the United States economy such as the shift in production facilities to other countries. This would mean that changes in monetary and fiscal policy would not necessarily have a direct effect on the unemployment rate.

So while current theories show that monetary and fiscal policies may indeed impact inflation and unemployment, such is not always the case in certain situations as shown in the example provided. The basics such as solid economic fundamentals must always be considered when looking at the impact of such changes to see if they can really attain the desired effect.

References:

Baker, D. (2005). The Federal Reserve Board – The Most Important Source of Poverty in the United States Center for Economic and Policy Research Economics Seminar Series. Baumol, W. and Blinder, A. (2006) Macroeconomics: Principles and Policy, Tenth edition.

Thomson South-Western, United States Davidson, Scott. (2003). Economics: Perfect Competition and Monopolistic Competition. 2nd Series. Bantham Books: 103-105. Davis, K. (2003). The costs and consequences of being uninsured. Retrieved February 4, 2008, from http://www. cmwf. org Epstein, L. and Martin, P. (2003). The Complete Idiot’s Guide to the Federal Reserve. Alpha Books. United States Kansas, Dave (2009) The Wall Street Journal Guide to the End of Wall Street as We Know It: What You Need to Know About the Greatest Financial Crisis of Our Time–and How to Survive It (Paperback) Collins Business ISBN-10: 0061788406

Mishkin, F. (1995) The Economics of Money, Banking, and Financial Markets, New York, Harper Collins. United States. Stone, Diane. (2007) “Market Principles, Philanthropic Ideals and Public Service Values: The Public Policy Program at the Central European University”, PS: Political Science and Politics, July: 545—551 Taylor, John (2009) Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial

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