When it comes to influencing macroeconomic outcomes, governments have typically relied on one of two primary courses of action: monetary policy or fiscal policy.
The aims of fiscal and monetary policy are similar. They could both be used to:
The principal aim of fiscal and monetary policy is to reduce cyclical fluctuations in the economic cycle. In recent years, governments have often relied on monetary policy to target low inflation. However, in recessions, there are strong arguments for also using fiscal policy to achieve economic recovery.
Overview of monetary and fiscal policy
Monetary Poicy | Fiscal Policy | |
Tool | Interest rates | Tax and government spending |
Effect | Cost of borrowing/mortgages | Budget deficit |
Distribution | Higher interest rates hit homeowners but benefit savers | Depends which taxes you raise |
Exchange rate | Higher interest rate cause appreciation | No effect on exchange rate |
Supply side | Limited impact | Higher taxes may affect incentives to work |
Politics | Monetary policy set by independent central bank | Changing tax and government spending higly poitical. |
Liquidity trap | Cuts in interest rates may not wrk in liquidity trap | Fiscal policy advised in very deep recessions |
Monetary Policy strengths and weakness
Strengths | Weakness |
1.It is a way to effectively control inflation in the economy. | 1.It comes with the risk of hyperinflation. |
2.It is a policy that is fairly easy to implement. | 2.It takes time for the changes in monetary policy to occur |
3. It provides multiple tools to use so that the goals of monetary policy are achievable | 3.It can boost the import levels for the national economy |
4.It comes from a position of political neutrality. | 4.It cannot guarantee economic growth. |
5.It offers a way to promote transparency in the economic system. | 5. It typically works on a national level, but not at a global level |
6.It offers financial independence from government policies | 6.It can discourage expansion opportunities for businesses. |
Fiscal Policy strengths and weakness
Strengths | Weakness |
1.Can Direct Spending To Specific Purposes | 1.May Be Politically Motivated |
2.Can Use Taxation to Discourage Negative Externalities | 2.Tax Incentives May Be Spent on Imports |
3.Short Time Lag | 3.Can Create Budget Deficits |
4.Unemployment Reduction | 4.Conflict of Objectives |
5.Economic Growth Increase | 5.Adverse Effect on Redistribution of Income |
6. What are the strengths of monetary policy? What are the weaknesses? What are the strengths...
What is the meaning of a principled foreign policy? What are its strengths and weaknesses? Do you think it can work in today’s world?
What are the strengths and weaknesses of TOGAF?
What are the strengths and weaknesses of Behavior Psychology?
What are the strengths and weaknesses of the United Nations? Provide examples that demonstrate the strengths and weaknesses identified. Do you believe the UN is an effective international organization? Provide 3 examples to support your position. Do you believe there is a need for an international organization like the UN?
What are the strengths weaknesses opportunities and threats of ClickDishes?
What are the strengths and weaknesses of Rawlsian approach to business ethics?
Describe the role of policy mix of fiscal and monetary policy actions in stabilizing the inflation, unemployment and RGDP growth for the economy 6. Describe the role of policy mix of fiscal and monetary policy actions in stabilizing the inflation, unemployment and RGDP growth for the economy 6.
disease prevention and health promotion-topic What strengths and weaknesses do each of the topics above bring to the process of problem solving related to your policy issue?
Explain the difference between Fiscal Policy and Monetary Policy. What are some of the “tools” used to implement fiscal policy? Cite at least two specific examples of action taken to implement fiscal policy (or at least attempted) in the past year. Who did what, how, and why?
6. MONETARY AND FISCAL POLICY WITH AN INTEREST RATE TARGET a. What is the slope of the LM curve when there is an interest rate target? b. What is the intercept of the LM curve when there is an interest rate target? c. If the level of investment responds strongly to the rate of interest, and the central bank is following an interest rate target, draw the consequences for output when the interest rate target is increased. When is fiscal...