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Differentiate between fiscal and monetary policy. Demonstrate the mechanics of discretionary fiscal policy within the Keynesian...

  • Differentiate between fiscal and monetary policy.
  • Demonstrate the mechanics of discretionary fiscal policy within the Keynesian framework.

Solutions

Expert Solution

Fiscal Policy : Policy related to the Government expenditure and taxes is called fiscal policy. Government seeks to influence economy through the taxes and expenditure. These are used to stabilize economic activities.

Monetary policy: On other hand, monetary policy is operated through the central bank of country. Change in cost and availability of credit in economy, is called monetary policy. Monetary policy has been mandated to achieve objective of price stability and full employment.

Discretionary fiscal policy: Discretionary Fiscal Policy is an example active participation of government in economic activities. Government seeks to establish equilibrium in economy. Discretionary fiscal policy means government actively makes changes in expenditure and taxes to correct problem of underemployment.

Keynesian economists say that discretionary fiscal policy is followed in face of economic recession when private sector fails to generate enough demand in economy.

Rahul Sunny answered 1 year ago
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