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Federal Reserve, fiscal and monetary policy

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There is no doubt that the Fed, the Central Bank of the United States, plays an enormous and often successful role in the economy. Can they do something about the budget deficit? Is there a relationship between fiscal and monetary Policy?

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Solution Summary

This solution analyzes the correlations among the Federal Reserve, fiscal, and monetary policies.

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The short answer is NO, the Fed cannot do much about the budget deficit.

A more detailed analysis requires defining the terms. Budget deficit is said to occur when the government's expenditure exceeds its income. Fiscal policy is just a set of policies or tools that alter government income (primarily in the form of taxes) and government expenditure ...

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