ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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They both use the same tools to fix economic problems
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They both try to promote economic stability.
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They always must have Congressional approval before passing.
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They both are decided by a Board of Governors.
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Detailed explanation-1: -Both monetary and fiscal policies are used to regulate economic activity over time. They can be used to accelerate growth when an economy starts to slow or to moderate growth and activity when an economy starts to overheat. In addition, fiscal policy can be used to redistribute income and wealth.
Detailed explanation-2: -Monetary policy affects activity in the real economy, the rate of default among firms, and thereby credit losses on loans to those firms, asset prices, and balance sheets. All else equal, it thereby affects financial stability.
Detailed explanation-3: -Monetary policy is enacted by a central bank to sustain a level economy and keep unemployment low, protect the value of the currency, and maintain economic growth. By manipulating interest rates or reserve requirements, or through open market operations, a central bank affects borrowing, spending, and savings rates.
Detailed explanation-4: -(vii) Monetary and fiscal policies are complementary to each other; when one fails, the other succeeds. Monetary policy is more effective during inflation, while fiscal policy is more effective during deflation. (viii) A judicious combination of monetary and fiscal policies is required to meet economic exigencies.
Detailed explanation-5: -Fiscal Balances and Growth Since there is less need to create money to finance government expenditure, the resulting inflation rates for countries with low budget deficits are often lower. Low fiscal deficits also increase the pool of savings for higher levels of investment, leading to higher economic growth.