The state can influence macroeconomics intwo main mechanisms, they are fiscal and monetary policy. The one that prevails depends, among other things, on the social system of the state. And, as world history shows, only those countries where a reasonable balance was achieved between these two mechanisms achieved a sufficiently long-term state of economic stability in different historical periods. The fiscal and monetary policy of the state in various macroeconomic models has sometimes absolutely opposite significance for the development of the state itself.
For example, considering a classical model, wewe see that its creators assign a passive role to macroeconomic policy, since the economy is generally viewed as an internally stable system that, in the event of any upheavals, leads itself to a state of equilibrium.
The tools that directly produceself-regulation of the economy, are flexible prices and wages, interest rates on loans and deposits. Intervention of the state, in the opinion of the founders of the model under consideration, can only destabilize the state in the country, and for this reason should be minimized. And, consequently, the monetary policy is much higher than the fiscal policy, because fiscal measures have a crowding effect and can contribute to an increase in the level of inflation in the country, which completely negates their positive effect.
Also, the classical model suggests that monetary policy has a direct impact on the overall demand, and, consequently, on the gross national product.
In the concepts of economic neoclassicism,for example, the theory of rational expectations, their founders are considering both wages and prices, as the quantities are absolutely flexible. And, consequently, the market can support the economy in a stable state even without the slightest interference from both the Central Bank and the government. Policies aimed at stabilizing the economy can only have an effect if the Central Bank and the government have more complete information about the shocks of aggregate supply and demand than ordinary agents of the economy.
In the Keynesian model, the basicthe equation that determines the total costs, which, in turn, determines the size of the nominal gross national product. This model also considers fiscal policy of the state as a means with the greatest effect for stabilizing the macroeconomy as a whole, since the state's spending directly affects the size of aggregate demand, and also has a large multiplicative impact on the costs of end-users. At the same time, taxes are effective enough, both on the amount of consumption and on investment.
The Keynesian model considers this methodinfluence on macroeconomics, as the monetary policy of the state is secondary in comparison with fiscal policy. This opinion is justified by the fact that the change in the mass of money does not directly affect the domestic national product, but first it changes the mechanism of investment spending that responds to the dynamics of interest rate changes, and the already increased volume of investments has a beneficial effect on the growth of the domestic national product.
Such a mechanism of monetary policy of the foundersof this model is considered too complicated in order to effectively influence the main macroeconomic indicators of the state and the functioning of the market.
