Question

Describe the role of policy mix of fiscal and monetary policy actions in stabilizing the inflation, unemployment and RGDP growth for the economy 6.

Answer 1

Fiscal policy impacts the aggregate demand in an economy with the changes in government spending and taxation; while monetary policy changes the the money supply in an economy, which impacts the inflation rate and interest rates.

　

A fiscal policy means when government adjust spending to stimulate production or taxing used to influence and monitor the economy. Fiscal policy can be used to close the (a) recessionary gap and (b) inflationary gap. Contractionary fiscal policy eliminates the inflationary gap. It behaves opposite of expansionary fiscal policy, decrease government purchases, increasing taxes, or both results to leftward shift in the aggregate demand curve, thus restoring the economy to its natural level to real gross domestic product (GDP)

Monetary policies are the actions taken by central banks to control the monetary as well as financial status with the goal of attaining low inflation and sustainable growth in the economy. The tools that are used by the central bank under monetary policies include the reserve requirements, discount rate, and the open market operations. It Promotes lowered interest rates, which also leads to the lowered mortgage payment rates. The lower rates of mortgage payments mean that consumers will be able to settle their monthly payments on a regular basis, which will be win-win situation for merchandisers, creditors, increasing employment and property investors. Thus an effective way to control and stimulate the economy

To achoeve an optional mix of macroeconomic goals of employment growth and price stability, it is important that the two policies complement each other. A combination of both of monetary and fiscal policies can be used for the restoration of an economy to full employment output. The government might may reduce taxes and increasing spending; and may provide monetary stimulus by cutting short-term interest rates to increase employment and GDP