Question

Critical Thinking: During the recent economic crisis, both fiscal policy, discussed in the previous module, and monetary policy have been used to try to stimulate the economy. Fiscal policy is publically debated at great length by elected officials. Monetary policy is decided by a small group in closed meetings. Discuss whether the decision making process is a strength or a weakness of both types of policies.

Answer 1

Since fiscal policy is widely debated it often does not result in sound logical economic decision. The reason is that politician often are led to wrong economic conclusion due to their tendency to satisfy needs of voter banks. E. G govt often does not reduce payments or expenditure on specific groups during boom whileas it is necessary to do so according to economic logic. On the other hand monetary policy is free from voter bank politics and quite often very well educated and trained Economists make logical economic decisions. So publicly debated policy is not often logical economically