Summary
In the previous section we learned that the Fed and the government use
monetary policy and fiscal policy to steer the economy. But the
efficacy of monetary policy and fiscal policy is heavily debated. Both
supporters and dissenters raise many questions as to the exact working details
of monetary policy and fiscal policy.
One major area of debate is whether monetary policy and fiscal policy should be
run by active control or whether they should be dealt with more passively. One
side believes that the Fed and the government cannot react to economic changes
with enough speed to justify active policy and that instead passive
policy is more productive and safer. The other side believes that fast action
through active policy is the surest and safest way to keep the economy on track.
Another major area of debate in the realm of macroeconomics deals with the
budget deficit. There are numerous questions that surround the budget deficit
debate. For instance, should the budget be balanced? What is the burden of the
national debt? What are the long-term effects of an unbalanced budget? The
answers to these questions divide economists.
This SparkNote covers two major economic policy debates that relate directly to
money and to the economy. These debates are important since they often divide
economists. Similarly, by understanding these debates, it is possible to view
the complexity of macroeconomic policy in the real world. While macroeconomic
theory seems rather black and white, the application of this theory to the real
world is nowhere near this simple.
