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Chapter 24: Q. 12 (page 655)

Is stabilization policy more likely to be conducted through monetary policy or through fiscal policy? Why?

Short Answer

Expert verified

It is easier to handle problems with monetary policy.

Step by step solution

01

Step 1. Introduction

The framework established by the central bank in order to accomplish economic growth and stabilise the country's economy is known as monetary policy.

02

Step 2. Explanation

Because it is easier to handle problems with monetary policy than with fiscal policy, stabilisation policies are typically performed via monetary policy. The fiscal policy necessitates modifications to the present tax system and government spending, as well as a lengthier implementation period.

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Most popular questions from this chapter

Many developing countries suffer from endemic corruption. How does this help explain why these countries’ economies typically have high inflation and economic stagnation? Use a graph of aggregate demand and supply to demonstrate.

Because government policymakers do not consider inflation desirable, their policies cannot be the source of inflation.” Is this statement true, false, or uncertain? Explain your answer.

How can demand-pull inflation lead to cost-push inflation?

How does the policy rate hitting a floor of zero lead to an upward-sloping aggregate demand curve?

For aggregate demand shocks and permanent supply shocks, the price stability and economic activity stability objectives are consistent: Stabilizing inflation stabilizes economic activity, even in the short run. For temporary supply shocks, however, there is a trade-off between stabilizing inflation and stabilizing economic activity in the short run. In the long run, however, there is no conflict between stabilizing inflation and stabilizing economic activity.
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