Question

how a combination of fiscal and monetary policies can be used to restore an economy to full employment, Economic growth and Balance of payments

Answer 1

The fiscal policy is made by the Central Government, by which developmental activities are decided by taxes and its expenditure.

Inflation and money supply control through interest rates under monetary policy by the central bank of that country.

When both of these policies work in proper coordination ,it may lead to generation of employment and economic growth and thus increasing export may lead towardstowatrd to balance of payment.

When central government use fiscal policy in rational way and focus on increasing taxes collection through taxes reform and tax administration and rational expenditure in gross fixed capital formation and welfare activities . These activities is not in separate manner but along with monetary policy of expansionary during period of low inflation and lower growth and demand in the economy and contractionary policy during higher inflation control .

Thus both of the policies increases investment opportunities in the economy through government expenditure as well as through banking system and private investment May lead a way towards employment generation and thus economic growth and bop as well(by attracting foreign investment and increasing exports ).

Thus a rational and are balnce between both policies may lead to create full employment , grwoth and bop etc.