ABSTRACT
In the sections on fiscal and monetary policies, textbooks combine a number of historical and theoretical topics that vary greatly in their difficulty, thus presenting a challenge to the instructor. The coverage of the impact of government spending and taxes on GDP is usually relatively straightforward and is necessary for students to understand newspaper headlines. Similarly, coverage of the history of fiscal policy is accessible and appropriate for a high school course. The actions of the Federal Reserve in regard to interest rates are frequently in the news, and so also deserve explanation in the classroom. NCEE Standard #20
Federal government budgetary policy and the Federal Reserve System's monetary policy influence the overall levels of employment, output, and prices.
As with other macroeconomic standards, the statement is deliberately vague, collapsing all fiscal and monetary policy into a single statement. This is because Classical economic theory (and conservative political rhetoric) teaches that market economies, if left to themselves, would settle into states of full employment, growth, and price stability, without any need for government action. Thus the valid reasons for—as well as the theories of—more Keynesian-oriented active government stabilization policies are given short shrift in curriculum materials inspired by this view. Some materials even imply that government action can only make things worse—for example, they claim that government spending will only have the effect of causing interest rates to rise, crowding out private investment. But this pessimistic view of government is not a consensus view even within the neoclassical perspective, nor is it supported by empirical evidence.
