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Are fiscal policy and monetary policy independent?

Are fiscal policy and monetary policy independent?

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Answer #1

NO

Both Fiscal and Monetary policies are interdependent on each other the success full anyone policy required mutual cooperation between two policies.

Example economy in deflationary situation reducing the interest rate encourages investments in the economy similar government future reducing the taxation will boost the investment in the economy. In the opposite case increasing, the corporation taxation hampers the private investment and reduce the effectiveness of the monetary policy in the controlling the deflationary situation.

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