Use Fiscal Policy...

When it comes to growth the trade-off between inflation and employment is in question. The thing that is dominating the current situation is inflation in face of high unemployment. Quantitative easing although concentrating on increasing money supply is not sufficient in improving demand which is not in line with the classical rule, "supply creates it own demand." Demand is created when there is an improvement in wages or effective demand. In the US demand, even after two rounds quantitative easing, is sluggish. The US economy should concentrate on policy that increases wages. The central bank is only responsible for managing the money supply which has bought bonds to facilitate money supply and economic activity, but it did not work as was expected to and is fading away. The next tool the economy has, to use its fiscal policy which directly affects demand and wages. The question arises is that why we can not pay for fiscal policy through quantitative easing? Why the government can not directly use the money for fiscal policy? The answer is that we expect central banks and government to work independently to avoid another recession to occur. The great recession was the result of too much reliance on monetary policy to generate growth but it tumbled later. Through fiscal policy the government should concentrate on increasing wages. Fiscal policy is expected to increase demand for labor and increase employment which the economy wants at this point of time.