ECO105Y1 Chapter Notes -Business Cycle, Strategy Of Unbalanced Growth, Open Market Operation

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Notes for lecture 18: macro 2: fiscal policies, government spending and taxation. Note: some of the content in lecture 17 is presented in lecture 18. Purpose of monetary and discretionary fiscal policy [dfp] The primary purposes of monetary policy [lecture 17] and discretionary fiscal policy are to achieve full employment with price stability. Through the transmission mechanism [analyzed in lecture 18], it was shown how monetary policy worked when the central bank undertook open market transactions [omo]. When the central bank [bank of canada] buys/sells government of canada bonds, the central bank"s intention is to increase/decrease the cash reserves of the chartered banks. In this lecture [and the following lecture], it will be shown that discretionary fiscal policy, which should be co-ordinated with monetary policy, would also work to impact upon gdp, employment and the price level. Discretionary fiscal policy [dfp] is that component of total fiscal policy intended to achieve full employment with price stability.

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