Political Issues in Microeconomics

Under the expansionary monetary policy, the government uses it to increase money supply which in turn lower unemployment, boost consumers spending rate, encourage private sector borrowing, and eventually stimulate growth economically. Thus this is commonly referred to as active monetary policy, normally used during periods of economic downturn. Thus its effectiveness during the economic downturn has been supported by a numerous analyst. Contractionary on the other part is used to slow down the rate of growth in the supply of funds in the economy, commonly used to tame the rate of inflation. However, in some cases, the contractionary monetary policy slows down economic productivity, raise the rate of unemployment, suppress spending and borrowing by consumers and firms (Arestis, Baddeley, & McCombie, 2006). Tax incentives for saving Many governments in the world are increasingly becoming a concern with the rate of saving, and in this view, their agenda is based on enacting policies engineered to raising savings.

Saving can be said to be part of the national output that is not consumed and they represent resources that the state can use to replace, increase, or generally, improve the capital stock of the nation (Thadden, 2003). From an individual point of view, saving is regarded as money in the bank. It represents individuals wealth earning that can be spent in future to gather for emergencies or consumption, to be used after retirement, or pass over to other people to heirs. Conversely, from state view, saving represent income that is not utilized on consumptions of goods and services (Thadden, 2003). Proposals on tax incentives to promote saving have been overtime outline by various scholars. However, there must be a certain disclaimer to support to move.

First there no proclamation that increasing household saving is effective for structural tax reforms. Either, there must be other goals such as ensuring equitable distribution of tax burdens, effective administration of tax system and ensuring minimal alteration of economic choices are all essential to being considered. If not taken into account, each of these aspects may place major constraints to the motive of changing the tax structure with an aim of promoting saving. These to the case, are efficient as both earns a higher after-tax distribution as compared to regular taxable accounts, thus stimulating saving in this accounts. In contrast, an analyst argued that tax incentives can fundamentally affect personal and public saving. The tax revenue loss incurred for this incentives will eventually lower saving through decreasing the budget surplus or rather rising budget deficit.

The decrease in public saving rather offset any rise in the personal saving cause by tax incentives. Another argument against increasing tax incentives for saving has been highlighted that though the objective is to increase savings among all citizens, they rather benefit a more higher-income class of families and individuals as compared to lower-income class earners thus they are quite discriminatory. Thadden, L. Active monetary policy, passive fiscal policy and the value of public debt: Some further monetarist arithmetic. Frankfurt am Main: Deutsche Bundesbank.