Question

Does monetary policy have an advantage over fiscal policy?

Answer 1

There are several advantages of monetary policy over fiscal policy

• Monetary policy is easier to be implemented then fiscal policy because fiscal policy takes time to device the appropriate policy response. Firstly a bill is drafted after which it is proposed and then it is passed Congress. This whole process takes a lot of time while in case of monetary policy the federal open Market committee takes much quicker action
• Monetary policy is easier to implement because there are bureaucratic problems on the fiscal policy while monetary policy targets key interest rates which are influenced by the open market operations of sale and purchase of Government bonds.
• Fiscal policy specially the expansionary fiscal policy is difficult to be used when there is already a high and increasing budget deficit. Also monetary policy is not influenced by political pressures while fiscal policy depends upon political willingness.