Question

Question: I need help to describe how fiscal and monetary policies impact economic situations. Was it becau... I need help to describe how fiscal and monetary policies impact the US economic situations. Is the result of the impact due to the timing of the policies? What was the inside lag associated with these policies? How long was the outside lag? Could anything be done to decrease the length of these lags?

Answer 1

The Federal Reserve Act sets out monetary policy objectives. It specifies that the Federal Reserve System and the Federal Open Market Committee should seek to "effectively promote the goals of maximum employment, stable prices, and moderate long-term interest rates" in conducting monetary policy. Using monetary policy tools, the Federal Reserve can affect the volume of money and credit and their price-interest rates. It affects jobs, production, and overall price levels in this manner.

After each of its eight annual meetings, the Federal Open Market Committee (FOMC), the financial policy-making body of the Fed, issues a declaration. The statements portray financial circumstances, monetary policy, and the FOMC's activities in relation to the federal funds rate and the discount rate— the Fed charges depository organizations for overnight borrowing

The U.S. budget has moved from a surplus to a deficit over the previous year, partly as a consequence of fiscal policy modifications. The change was triggered by a mixture of tax cuts, enhanced expenditure, and the recession of 2001. Tax cuts and enhanced expenditure are component of the fiscal policy of the government aimed at boosting short-term economic growth.

Monetary policy changes usually have an impact on the economy with a delay of between three quarters and two years. The gap between a change in fiscal policy and its impact on production tends to be shorter than the gap in monetary policy, particularly for changes in expenditure that more directly influence the economy than changes in taxation.