Original topic in Advanced MAcroeconomics Essay

Original topic in Advanced MAcroeconomics - Essay ExampleThe fit of payments is usually in deficit. (Adams, 2002, pp. 53-55)A countrys fiscal policy is the mix of government expenditure and revenue gather inion mechanism in an economy. Historically, governments collect revenues from taxes and their expenditures include public sector expenditures. (Auerbach, 1997, p. 88)A countrys fiscal policy is a combination of activities by the state bank or telephone exchange bank, the government and other financial institutions to control the demand and supply of money and interest rank in an economy. In a nutshell, the effect of each is parasitic on the other and that is what the monetary policy aims to control. (Walsh, 2003, pp. 9-12) This case focuses on primarily on monetary policy. To gain a better understanding of how a monetary policy works, we first need to understand its two pieces i.e. money supply and interest rates.Money supply is generally divided into M1 and M2. Further clas sifications may also exist. The divisions are based on liquidity of the funds. M1 funds are the most liquid funds and include cash, very short term securities or securities resembling to cash. M2 funds include those funds which are slightly less liquid than cash like current account deposits. As the liquidity decreases, the number afterwards M increases.In my opinion interest rate is basically the cost of money. It is also the cost of borrowing or the return on investment. Interest rates have two components. The discount rate which is set by the central bank and is the rate at which the central bank lends to commercial banks. The other component is the market interest rate. I believe it differs because of banks spreads and their portfolio of customers.In my opinion, the developed nations have always moved towards a relaxed monetary policy as they promote free trade and trade liberalization. In addition the existing well defined systems in these economies allowed for and