Question

1. Governments employ fiscal and monetary policies to regulate economies. Describe: a. what characterizes each type...

1. Governments employ fiscal and monetary policies to regulate economies. Describe:

a. what characterizes each type of policy.

b. why one or the other is better suited to deal with inflation or recession.

Please try to be as thorough as possible, thanks!

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Answer #1

a) Fiscal policy is the policy related to government spending or taxation.

Monetary policy is the policy related to actions of Central bank to control the supply of money in the economy.

b) During inflation, contractionary monetary policy is effect which is the result of increase in reserve requirement, discount rate, increases federal funds rate, sale of open market operation.

During recession, expansionary fiscal policy is effective which occurs due to either increase in government spending or decrease in taxes.

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