IndexIncrease in public spending to fight the recessionArgument for Argument againstOwn point of viewAs an economic driver and policy advanced by the central bank, inflation targeting is in fact an effective principle for controlling the level of inflation and maintaining it at a pre-established level (Bernanke & Mishkin, 1997). In most cases, the federal government sets the level of Consumer Price Index (CPI) inflation at a given margin. In America, for example, the Federal Reserve constantly ensures that the inflation margin is between 1.7% and 2%. According to Rudebusch and Svensson (1999), the relationship between the inflation rate and the interest rate is indirect, although in a real sense this does not mean that the adjustment of interest rates will automatically and immediately affect persistent inflation. In other words, although the main reason for the zero inflation target is to keep the level of inflation under control, it tends to reduce the flexibility of the central bank. In this case, a fall in the inflation level below the target range pushes the FED to cut interest rates and consequently increase the money supply (Debelle, 1997). Conversely, when the inflation rate exceeds the inflation target, the Fed must raise the interest rate and subsequently lower the level of money supply in an attempt to stifle the rising level of inflation. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay Increase Government Spending to Fight Recession Economic trends show that the federal government cannot act on its own without input from the central bank. For the economy to survive, fiscal and monetary policy should play an interactive role and involve both parties (Davar, 2013). During a recession, for example, demand for goods and services is suppressed and consumers must reduce their spending, which consequently leads not only to an increase in the level of savings but also to a reduction in the level of private sector spending. As a result, private investors lower their level of production by curbing their investments and laying off workers. It goes without saying that more and more companies are committed to reducing the level of production and laying off employees because they are unable to keep them employed. On the other side of the economy, public income obtained from taxes is rapidly decreasing. Mitchell (2005) postulates that the effect of the unsustainably high cost of living is felt by the taxpayer who is forced to forgo essential services such as law enforcement, emergency services, household spending, etc. the level of spending in the economy. Ideally, this means that getting the economy out of recession requires the government to increase its spending without necessarily increasing the tax rate (Barro, 1990). The private sector in this case is not able to increase the level of spending, and therefore the government must intervene. The implication is that the government must spend significantly to ensure recovery from the recession. Some of the expansionary fiscal policies that the government can adopt include tax cuts and government spending. To achieve a balanced budget, the amount of taxes collected should equal government spending. Furthermore, to run a budget deficit, the government must spend more than it receives in tax revenue. For a surplus, the government should spend less than it collects in taxes (Zhang & Zou, 1998). However, it is imperative to note thatonly an effective fiscal stimulus has the potential to revive economic growth out of recession. Scholars supporting the economic stimulus proposal postulate increased government spending has the following benefits to the economy: Job creation. Increased government spending on capital projects such as construction of industries, education, communication networks and other infrastructure projects creates employment opportunities for young people who want to work in the sectors. During the Great Depression of the 1930s, TVA was formed, creating jobs and helping to catapult the economy out of recession. Multiplier effect. Providing jobs to the unemployed has a multiplier effect as income earned from new job opportunities increases consumer demand for goods and services, thus pushing businesses to expand their operations to meet demand. Buying more and more products helps the government earn higher income from the taxes it collects from value-added taxes and trade taxes collected from businesses. Overall, the increase in aggregate demand and income level in the economy leads to an increase in gross domestic product (GDP), thus translating into economic growth. The government can then use the tax revenue collected to finance any budget deficits in the economy (The Economist, 2015). Arguments against Opponents, however, postulate that increased government spending leads to the payment of large taxes in the future (Lin, 1994). According to them, the attempt to increase spending could push the government to purchase goods and services of little value to the public. The expansion of public spending is also synonymous with increasing levels of inflation and inefficient allocation of resources, especially when the state is unable to spend public funds efficiently (Devarajan, Swaroop & Zou, 1996). Increasing government spending in an economy operating at full capacity would still crowd out the private sector leading to an insignificant increase in aggregate demand – an action that would essentially suppress economic growth. targeting is essential for a nation as it helps control inflation levels, especially when the economy is on the verge of hyperinflation. However, it is a fact that for the economy to prosper, a certain level of inflation should be allowed and with inflation targeting, economic growth is ensured while the price level is controlled. Furthermore, inflation targeting helps to establish customer expectations, thus making it easier to maintain the inflation level, and in the long term, economic planning is not only improved but also determinable as price movements are easily monitored (Svensson, 2000 ). However, it is important to note that a low inflation rate is a definite cause of deflation. The negative effects of deflation are the increase in the real value of debt and the interest rate. With a rising interest rate, borrowing and investing are essentially inhibited and investors are choosing to save instead. Rising interest rates represent a significant downside to a depressed economy as monetary policy is completely ineffective in stimulating growth. Recovery is difficult mainly because the price level is always under pressure to be maintained at a level that still promotes growth. Opponents of the zero inflation target suggest that inflation is not directly linked to all economic variables and therefore it is ineffective to use it to determine an impact (Debelle, 1997). In a situation where businesses lower the level of inflation, the rate of,.