All the government leaders have to do is to think systematically in a scientific way, according to the situation, and implement the appropriate kind of policy to the benefit of their country.
By Laila Tarek
There are two major types of economic policy making, and they are usually applied in all the world's government:
1 The fiscal policy, which is divided into two minor parts. The first one is the expansionist fiscal policy, when the government decides to lower their taxes and increase their spending (in pursuit of increasing the level of Aggregate demand). The second minor policy is the contractionary (restrictive) fiscal policy, which contradicts the expansionist policy since the aim of the government is to decrease the Aggregate Demand by increasing taxes and lowering their government’s spending.
2 The monetary policy, which is rather based on the interest rates than the taxes and spending. We find the same minor parts called expansionist and contractionary monetary policies. However, in the monetary expansionist policy, though the goal is the same (which is to increase the AD), the instrument used is different. In this one, the government decreases the interest rates hoping that easy credits will entice the business. On the other hand, in the contractionary monetary policy, the government increases the interest rates, hoping to slow down the inflation a bit.
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