Question

Fiscal Policy is the means by which government adjusts its spending and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy and that is defined as a policy through which a central bank influences a nation's money supply.

In my opinion I prefer a monetary policy because of its stability and fiscal relies too much on government debt. Fiscal policy decision making can also be influenced more on politics than the need of the economy.

Governments use each policy when the economy is too hot and inflation is rising:

fiscal: Governments can influence productivity levels by increasing or decreasing tax levels and public spending and usually curbs inflation. It also increases employment, can maintains a good value of money. Basically the government increases taxes to suck money out of the economy.

monetary: This is the process by which the authority on currency of a country such as a central bank controls either the cost of very short-term borrowing or money supply. They often target inflation of interest rate to create price stability and maintain trust in its currency.

Each policy used in a recession the government can increase government spending and cut taxes (or both). This can bring more jobs and the workers have more disposable income to put back into the economy.

Can I get a  reponce to this guy. Please try to wrte your agreement.

Your discussion post must be substantive. As a guideline your response to each question should be at least one paragraph. Your responses to fellow classmates must be substantive as well. Stating, “I agree” or “Good work” is cheerleading

Answer 1

I agree to what classmate says.

Fiscal policy is a policy determined by the govt. and it has two tools: taxes and government spending.

When there is inflation and government wants to reduce heating of an economy then it increases taxes and decreases spending. This is called as contractionary fiscal policy.

When there is recession and government wants to induce economic activity then it decreases taxes and increases spending. This is called as expansionary fiscal policy.

Monetary policy is a policy determined by central bank and has two tools; interest rates and money supply.

When there is inflation and central bank wants to reduce over consumption in an economy then it increases interest rates and decreases money supply. This is called as contractionary monetary policy.

When there is recession and central bank wants to boost economic activity then it decreases interest rates and increases money supply. This is called as expansionary monetary policy.

However, these polices have certain limitations and these are:

Time lags in implementation. Expansionary fiscal policy has crowding out effect in which govt. spending drives out private investments. In deep recessions, both these policies are ineffective.