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Monetary Policies
Monetary policies refer to practices of money management by the government of a given economic region. In the case of a deep depression, all or the majority of the macroeconomic indicators in a given economy move into the negative (Bodie, Kane, & Marcus, 2013, pp. 380 – 381). In such a situation, the monetary policies that such a government may engage in include printing of more money, trading in the open market, and reduction of interest rates.
On the other hand, fiscal policy refers to actions by the government taken to correct economic conditions through a control of government spending (Bodie, Kane, & Marcus, 2013, pp. 379 – 380). In case of a deep depression, the government may engage various fiscal policies to control the effects of the deep depression. Such fiscal policies include a decrease in the tax rate and an increase in direct government spending such as on infrastructure projects. Such spending should increase employment, production levels, and aggregate demand, which will be instrumental in reversing the effects of the deep depression.
Reference
Bodie, Z., Kane, A., & Marcus, A. J. (2013). Essentials of Investments. New York: McGraw-Hill/Irwin.
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