Question

What obstacles might inhibit the effectiveness of fiscal and monetary policy? One obstacle both must overcome, one obstacle unique to fiscal policy, and one obstacle unique to monetary policy.

Answer 1

The obstacle common to both the policies is that in an attempt to stimulate the economy and fasten the growth , both the policies tend to push the economy into the pit of inflation which leads to fall in value of money.

Obstacle in the monetary policy is the presence of the huge time lags which reduce the effect of the policy at the time it was intended to affect the economy.

One obstacle of fiscal policy is that excessive spending leads to the crowding out of investment which raises the interest rates and makes the policy ineffective