Question

what is the market dynamic in the fiscal and monetary policies?

Answer 1

Monetary policy involves changing the interest rate and influencing the money supply. Fiscal policy involves the government changing tax rates and levels of government spending to influence aggregate demand in the economy. When the government increases the amount of debt it issues during an expansionary fiscal policy, issuing bonds in the open market will end up competing with the private sector that may also need to issue bond at the same time. This is what’s known as crowding effect.