Long-term consequences of stabilization policies
Stability policies are economic policies implemented to ensure macroeconomic balances of economies and to accelerate their recovery in cases of instability or crisis. The content and tools of stabilization policies differ in line with the economic structure, problems and goals of the countries. In this article, the case of the United States of America (USA) will be examined to make an assessment on the long-term consequences of stabilization policies.
The USA is the world's largest economy and the center of the global financial system. The US economy has displayed a stable growth performance since the second half of the 20th century. However, in this process, the US economy also experienced various periods of instability and crisis. During these periods, the US government and the central bank (Fed) tried to support the economy by implementing stabilization policies.
In order to evaluate the long-term results of the stabilization policies implemented in the USA, it is first necessary to define the types and purposes of these policies. Stability policies can be broadly divided into two main groups: fiscal policy and monetary policy.
Fiscal policy is the policies that affect the state of the public budget and the level of public debt by determining the government's revenues and expenditures. Fiscal policy can be used to increase or decrease aggregate demand in the economy. For example, the government can increase aggregate demand by lowering taxes or increasing public spending. This type of fiscal policy often leads to a budget deficit and is called expansionary fiscal policy. Expansionary fiscal policy can be implemented in times of recession or recession in the economy. Conversely, the government can reduce aggregate demand by raising taxes or reducing public spending. This type of fiscal policy often leads to a budget surplus and is called a tightening fiscal policy. Tightening fiscal policy can be implemented during periods of overheating or inflation in the economy.
Monetary policy is the policies that affect the money conditions in the economy by determining the money supply and interest rates of the central bank. Monetary policy can also be used to increase or decrease aggregate demand in the economy. For example, the central bank can increase aggregate demand by increasing the money supply or lowering interest rates. This type of monetary policy is called expansionary monetary policy. Expansionary monetary policy can also be applied in times of recession or recession in the economy. Conversely, the central bank can reduce aggregate demand by reducing the money supply or raising interest rates.