Monetary and fiscal policy (collectively called demand management) can be used to stimulate the economy. In essay format, provide a detailed discussion of both fiscal and monetary policy by explaining how policymakers can stimulate the economy. Your discussion should incorporate the following:
- Fiscal policy ( Definition, Instruments used by fiscal policy )
- Monetary policy ( Definition, Instruments used by monetary policy)
- Policy effectiveness
Introduction: Both fiscal policy and monetary policies are methods by which a government can stimulate the economy's growth, reduce unemployment, and control inflation. Normally, the fiscal policy is implemented by the government and the monetary policy is implemented by the central bank (a). However, in several countries, the policies of the government influence and control the central bank.
Fiscal Policy: The fiscal policy is the changes in government revenue collection and expenditure to affect the country's economy. The instruments used by the fiscal policy are changes in taxation and changes in government spending. Usually, when the economy is in a ...
This posting discusses the use of fiscal and monetary policy and its effectiveness in stimulating the economy.