Confliction Between Macroeconomic Policies

Question 0

Fiscal policy and monetary policy?

Answer 0

When gov. runs a deficit (FP) they have to borrow off investors - this gives investors liquid assets that are easy to trade on the money markets, and can create stability during a credit crunch but also can cause inflation because it increases the liquidity available.

Question 1

Fiscal policy and supply side policy?

Answer 1

Contractionary FP may shift AS curve left which would counteract any SSPs trying to shift the AS curve right.

Increased gov. spending may be used as part of FP to increase AD, and this may also help supply side policy because lots of that spending would probably go into health and education sectors.

Question 2

MP and SSP?

Answer 2

Tight MP (high IR) can either:
Raise costs of production for firms, so conflicting with SSP.

OR

Make exchange rates rise, so imports become cheaper and costs of production fall, making the AS curve shift right (SSP).