Question

Explain why fiscal policy is slower and less useful for fine-tuning the economy than monetary policy. (Your answer should be at least 6 substantive sentences)

Answer 1

Answer - Fiscal policy has large duration of implementation lags. In the fiscal policy , the spending can be increased and tax can be decreased easily and its effect is felt quickly. But when the spending is to be decreased , and the taxes are to be increased , this creates some political obstacles. Also the consumer are not ready to sacrifice their current level of consumption and reduce the level . Thus it takes time for the economy to adjust to the changes and fine tune the economy.