Before policymakers make any change in policy, they need to consider all the effects of their decisions. Earlier in the book, we examined classical models of the economy, which describe the long-run effects of monetary and fiscal policy. There we saw how fiscal policy influences saving, investment, and long-run growth and how monetary policy influences the price and.the in rate In this chapter, we examined the short-run effects of monetary and fiscal policy. We saw how these policy in students can change the aggregate demand for goods and services and, thereby, alter the economy’s production and employment in the short run. When Congress reduce» government spending to balance the budget, it.needs to consider both the long-run effects 011 saving and growth ‘and the effects on aggregate and employment. When the Fed reduces the growth rate of the money supply,bit must take into account the long-run effect on inflation as well ‘as the short-run effect on production, In all parts of government, policymakers must keep in mind both long-run short-rim goal.
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