In economics, the monetary policy, and the fiscal policy seek to determine the economic status of a country. The two strategies are used to control factors such as inflation, demand, and supply. Notably, the monetary policy seeks to control the supply of money in an economy (Cobham, 2015). On the other hand, the fiscal policy is concerned with government expenditure in the economy. The two systems have a direct impact on me as an employee. The objective to reduce inflation in the country has led to the reduction in the supply of money. Consequently, this has reduced my purchasing power of goods in the society. Also, through the fiscal policy, government expenditure has diminished as an attempt to reduce inflation. This has led to high cost of living as government spending on incentives has been cut.
As an attempt to stabilize the economy, the supply of money, imposition of taxes and government spending are the three fundamental elements which can be used. However, policymakers find it challenging to implement a specific strategy. This is a result of the economy being a system composed of components. Conversely, despite the associative nature of the economy, the control of the supply of money is effective in stabilizing the economy. Moderation of supply of money affects all sectors which result in reduced inflation.
A current economic dilemma is the debate as to whether abolish the current income tax and implement a consumption tax. Consumption tax involves the collection of revenue from consumer products while income tax consists of the compilation of revenue from initial revenue earned by consumers (Carroll, 2011). Consumption tax is beneficial as it leads to neutrality in the economy as it does not change behavior patterns of consumers. On the other hand, consumption tax contributes to low revenue for enterprises as spending by consumers are reduced. The benefit of income tax is that more revenue is generated for the government for its operations. However, it leads to reduced savings by consumers subsequently leading to condensed investment. In light of the elements as mentioned above, income tax is the preferred methodology as it equips the government with the power to stabilize the economy.
References
Carroll, R. (2011). Income Versus Consumption Tax Baselines for Tax Expenditures. National Tax Journal, 491-510.
Cobham, D. (2015). Monetary Analysis and Monetary Policy Frameworks: Introduction. The Manchester School, 1-4.
