Question

Explain the following in your own words:

The importance of fiscal policy during times of economic recession.
The reason why fiscal policy should be in tune with monetary policy when the economy is in the recession phase.
The importance of the Central Bank in the financial market.

Answer 1

Answer part a)Fiscal policy refers to the use of government spending and tax policies to influence economic conditions. During a recession, the government may employ expansionary fiscal policy by lowering tax rates to increase aggregate demand and fuel economic growth.

Answer part c) banks carry out a nation's monetary policy and control its money supply, often mandated with maintaining low inflation and steady GDP growth. On a macro basis, central banks influence interest rates and participate in open market operations to control the cost of borrowing and lending throughout an economy.