What is fiscal and monetary policy? Who implements these policies? Suppose a country has high inflation....

What is fiscal and monetary policy? Who implements these policies? Suppose a country has high inflation. What kind of fiscal and monetary policy do you suggest? Explain why.

Expert Solution

Fiscal and Monetary policy are tools used to control the economy from inflation and deflation pressures. Fiscal policy implemented by central government and monetary policies are implemented by Central Bank of a nation. Fiscal policy is implemented through taxation and government spending according to the economic situation. Like this monetary policy is implemented through various instruments like CRR ,SLR ,open market operations etc,.

If a country facing inflation then the government and Central Bank use contractionary fiscal and monetary policy to overcome this situation that's why because during inflation time the money supply is very high in the economy so Central government and bank try to reduce the money supply in the economy through contractionary fiscal and monetary policies.

Contractionary fiscal policy include increase the tax rate, reduced the public expenditure etc

Contractionary monetary policy include increasing cash reserve ratio, statutory liquidity ratio, bank rate and sell securities through open market operations.

Rahul Sunny answered 8 months ago

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