Question

" monetary and fiscal policies are useful tools controlled by the government "

discuss the benfits of these macroeconomic policies with relevant examples?

Answer 1

Benefits of Monitory Policies with examples :-

1.) Monitory policies increases liquidity to create economic growth.

2.) It reduces liquidity to prevent inflation.

3.) Goals of monitory policies :-

a.) To promote maximum employment.

b.) To promote stable prices.

c.) To moderate long-term interest rates.

4.) By implementing effective monitory policy, the FED can maintain stable prices, thereby supporting conditions for long term economic growth and maximum employment.

5.) It promotes predictability and transparency.

6.) Expansionary monitory policy makes it possible for more investments come in and consumers spend more.

Examples are :-

1.) Decreasing the discount rate.

2.) Purchasing the government securities.

3.) Reducing the reserve ratio.

Benefits of Fiscal Policies with examples :-

----- Fiscal policy is a government's decisions regarding spending and taxing. If a government wants to stimulate growth in the economy, it will increase spending for goods and services which will increase demand for goods and services. It is an important tool for managing the economy because of its ability to affect the total amount of output produced that is GDP. This involves increasing spending or purchases and lowering taxes.

----- Fiscal policy can promote macroeconomic stability by sustaining aggregate demand and private sector incomes during an economic downturn and by moderating economic activity during periods of strong growth. This helps economic agents to form correct expectations and enhances their confidence.

Examples includes :- Tax cuts and increased government spending, intended to increase aggregate demand while contributing to deficits or drawing down of budget surpluses.