IV. Read and translate the text:

Ever since the days of the Great Depression, the federal government has sought to stabilize the economy.

To achieve these goals the government relies upon two sets of «tools» or strategies: fiscal policy and monetary policy.

Fiscal Policy. Fiscal policy is applied by changing the level of tax receipts relative to federal spending. It is the responsibility of the President and Congress because they control taxing and spending.

When taxes are reduced, individuals and business firms will have more money available to spend for the things they want. As business and consumer spending begins to increase, the

economy will enter the expansion phase. If taxes are increased consumers and business would have less to spend. This would create a contraction in the total demand for goods that should reduce inflation.

Fiscal Policy Has Its Critics: Many economists fee! fhat when properly applied, fiscal policies can provide effective tools with which to fight recession and inflation. Others, however, believe fiscal policy solutions have several serious

drawbacks.

— When government reduces taxes to fight a recession, it often creates a budget deficit. That is its revenues will be less than its expenditures, and the government's debt will increase. When taxes are reduced, the government can still spend because it can borrow or print money.

If the government chooses to borrow from the public to offset a tax reduction, the money it borrows cannot be spent by the lenders.

— The federal government can also finance its debts by printing money.

Unfortunately, such increases in the money supply tend to fuel inflation by pushing up prices. For that reason a number of economists are opposed to this strategy.

Fiscal policies must be timed so that they are applied at the right moment.

Monetary Policy. Monetary policy refers to regulating the supply of money as a way of stabilizing the economy. Monetary policy is the responsibility of the Federal Reserve System.

There is a direct relationship between the amount of money in circulation and the level of business activity. When the mo­ney supply is increased, consumer spending and business spending tend to increase with it. It follows that in time of contraction and recession, an increase in the money supply will help to bring about economic recovery. When the opposite situation prevails and the booming economy is pushing up prices in an inflationary spiral, a reduction in the money supply will serve to reduce demand and lower prices (pp. 139—147).

V. Answer the following questions:

1. What strategies does government rely upon to promote maximum employment, production and purchasing.

2. What is fiscal policy?

3. How is fiscal policy applied?

4. In what ways could the recession be reversed?

5. What will happen when business and consumer spending begins to increase?

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6. Can fiscal tools be used to slow the economy?

7. What serious drawbacks have fiscal policy solutions!

8. What is monetary policy?