Is Monetary policy better then fiscal policy?

Question

I have to do a term paperon this subject, tell me what you think and if possible send me some usefule weblinks I need facks backing the oppinions Thank You If you know of any blogs that would also be helpfule or books

Please state you opinion and back it up with data or souces And if you Know any web site or blogs let me know I want to thatnk all of you who have already left an answer You guys and gals arevery articulat

Answer 1

It tends to be more effective.

A few reasons why:

Policy changes suffer from two types of lag, they're typically called "inside lag" and "outside lag".

Inside lag is all of the infighting Congress has to go through to determine fiscal policy. This typically takes a number of months.

The Fed tends not to suffer from this sort, as the Board of Governors can make decisions and implement them very quickly.


Outside lag is the amount of time it takes for the policy change to actually affect the economy. Again; unless there is a sudden massive increase or decrease in government spending - monetary policy tends to work faster.

Fiscal policy, however, can have more of an affect on long-term economic changes than mucking around with money supply.

A good book that does a nice, high-level view of this is the intermediate undergraduate textbook "Macroeconomics" by Greg Mankiw (who is a professor at Harvard).

Answer 2

The answer is none. Both work in conjunction with eachother to produce the most favourable outcome for the economy. Problems; Fiscal policy is very political based e.g. a government needs to increase tax rates to support his spending- the society will vote him out next term. Also the political nature is a very big problem because politicians tend to look short termed, what will help the economy while not condeming them as politicans. Monetary policy however has time lags, this can mean they have to look a year down the track at what happens and it is also quicker to implement. However if something goes wrong short term they will be unable to fix it appropriately.

Answer 3

The answer above is a good start. If you need to add more to your paper to make it longer. You could always talk about how ironic it is that the President gets the blame or credit for a good or bad economy. As President he is in charge of NEITHER.
Fiscal policy is controlled by the House of Representatives, who must initiate all spending and taxing bills (Art 1, US Constitution).
Monetary policy is in the hands of the Chairman of the Federal Reserve. Volcker did what was needed to end the Stagflation crisis, but he clearly cost Jimmy Carter the 1980 election in doing it. Oddly, Ronald Regan replaced him in 1987 prior to the 1988 election cycle, in part to protect Republicans from being hurt the same way.

Answer 4

Monetary and Fiscal policy usually refer to policies that level out the effects of the business cycle. Fiscal policy refers to the government running a surplus in good times and a deficit in during recessions, not the level of taxation or the progressively of the tax code. That is not to say that level of taxation or the progressively of the tax code have no effect on economic growth but just that they are not instruments for smoothing the cyclic moments in the economy. There are automatic stabilizers in government spending because during recessions tax receipts decline and expenditures on social welfare programs increase so a deficit is created without any actions by politicians. Given the political reality in the US, fiscal policy that requires action by congress and/or the president is impossible so we depend on monetary policy and automatic stabilizers. The Idea of a politician suggesting a tax increase to slow economic growth is unthinkable.

For data source on US economy see http://www.economagic.com/
Milton Friedman is tha most important monetarist and see Keynes for fiscal policy
Any introductory macro text book will provide the basic arguments for each. If you want sophisticated arguments also look up Lucas

Answer 5

I will have to disagree with all the answers so far. There really isn't a better policy between both, they are both equally effective depending on the exchange rate system, and objective of executing the policy.

Thinking macroeconomically, some countries uses fixed exchange rate system, and some uses float exchange rate system.

Fixed exchange rate systems uses more monetary policies. It helps to control the domestic currency from fluctuations. Thus its more engage in foreign policies, as the stability in the currency determines economic growth in the country.

Float exchange rate systems uses more fiscal policies. Fiscal policies helps to create an enviroment within the economy that promotes growth. They are more concern with domestic policies. This is because the stability of the country determines the value of the currency.

Therefore as you can see both policies works in different conditions. Of course, all countries uses both types of policies in as part of their administration

In addition, you should research on policy mixes. This is an area of economics that study how a mix between fiscal and monetary policies will stabalise the long term effects, and maintain unemployement and inflation rates. This area of study will tell you that, effectivness comes from the combination of both policies, and there's no argument on whether one is better than the other.

Answer 6

Monetary policy relates to managing the economy through The Federal Reserve manipulation of interest rates and money supply. Paul Volcker (chair of the fed before Greenspan) was very successful in crashing the economy to stop inflation in the early 1980s. This helped set the stage for later economic growth.

Fiscal policy is manipulation of the economy through tax and spend policies. Democrats want to tax and redistribute the money to the poor and lower classes to spend. Republicans want to cut taxes and leave more money with people to save and invest to help with new capital formation. Check out Arthur Laffer, who came up with the Laffer curve, which justified that if Reagan cut taxes, it would led to more economic growth and greater tax revenues.

Do a google search (or try google scholar search) for these people and terms.

Answer 7

dont waste your time on the net but just consult KK Dewett or the simpler book that is Myneni and the answers and concepts will be damn clear to you and well let me tell you that I topped by studying from the same. so goooood luck!!!!!