Question

In Chapter 15 the discussion is about Monetary Policy and a comparison with Fiscal Policy. Which do you think is the better option for government involvement in both types of macrofailure (Recession & Inflation)? State at least one positive and negative thing about each option. Why do you feel this way? Try to be as original as possible with your comments.

Answer 1

Ans If we talk about the government involvement it is only possible in FISCAL POLICY because the monetary policy is framed and implemented by central bank of the country.

FISCAL POLICY

It is the policy of government revenue and expenditure in the economy so as to correct the inlation or recession

Advantages

1.Unemployment Reduction

2.Budget Deficit Reduction

3.Economic Growth Increase

DISADVANTAGES

1.Conflict of Objectives

2.Inflexibility

MONETARY POLICY

ADVANTAGES

1. It can bring out the possibility of more investments coming in and consumers spending more.
2. It allows for the imposition of quantitative easing by the Central Bank.

DISADVANTAGES

1. It does not guarantee economy recovery.
2. It is not that useful during global recessions.