Th2.6: Monetary vs Fiscal Policy

Question 1

Why is monetary policy useful?

Answer 1

the government is able to increase demand without having to increase their spending, which would result in a larger fiscal deficit

Question 2

What do classicists argue if demand management is going to be used?

Answer 2

only monetary policy should be used

Question 3

What can fiscal policy have significant impacts on?

Answer 3

the supply side of the economy, for example increases in spending on education to increase AD will also increase LRAS

Question 4

What is fiscal policy more effective at targeting therefore?

Answer 4

specific groups and reducing poverty, for example by increasing benefits it can increase AD and reduce inequality