Why is monetary policy considered more effective in accomplishing major goals of economic policy?

Answer 1

Some people have touched on it:

Monetary policy can be changed arbitrarily by the Board of Governors. Further, this policy can be implemented relatively quickly, because the bond market will respond quickly to the change in money supply.

Changing policy goals through fiscal policy tends to be slow, involve a lot of political infighting and compromise, and then takes a long time to implement.

Answer 2

Monetary policy affects interest rate. When interest rate change, the market will have its own mechanism to adjust without any intervention. Unlike in fiscal policy, changes in government policy needs monitoring, regulation and intervention which hinder the market's natural activity.

Answer 3

I believe a combination of monetary and fiscal policy -- when both sides have the same goals and aren't canceling one another out -- is the most effective means.

Answer 4

Basic Keyensian IS/LM model question.

Fiscal policy will shift an IS curve out, but also cause the LM curve to shift in causing no change in output, while driving prices up.

Monetary policy will shift out the LM curve and IS curve resulting in higher output.

More anecdotally, fiscal policy draws its ability to change economic policy through taxation (also bonds etc, but let's ignore for now) and taxation is effectively the transfer of wealth from one person to another. So no new output is generated, just money changing hands.

Monetary policy changes behaviour given a set of preferences, ie. higher interest rates make it more attractive to save, so people who would otherwise not save money would begin to save if the interest rate met their reservation rate. This in turn will cause more money available for investment etc. This will over time cause the economy to grow.

Message me if you want more of an explanation.

Answer 5

b/c Federal Reserve can change rates every month, but changing taxes or budget takes a year.