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Can monetary and fiscal policies complement each other? Suppose economic policymakers are attempting to stimulate a...

Can monetary and fiscal policies complement each other? Suppose economic policymakers are attempting to stimulate a recessionary economy by raising government spending and lowering taxes. What sort of monetary policy is likely to be appropriate? (Address the crowding out issue.)

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Answer #1

Yes, monetary and fiscal policy complement each other in the market, if the government is lokking to support the economy after a recession then they will lower the taxes and increase the government expenditure this will lead to a higher interest rate that will crowd out the private investment in the market.

to support this policy of the government the monetary policy can increase the money supply that will lower the interest rate and bring the interest rate back the equilibrium and further increase the investment in the market.

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