In what way are monetary and fiscal policies similar?
A) They both target aggregate demand to overcome business fluctuations.
B) They are both effective when the economy suffers from real shocks.
C) Both involve a multiplier effect.
D) Neither involves a lag.

Question

Quizplus · Accepted Answer

Both monetary and fiscal policies aim to stabilize the economy by influencing aggregate demand. Monetary policy does this by adjusting interest rates and the money supply, while fiscal policy does this through changes in government spending and taxation. Both policies rely on the multiplier effect, which means that a change in policy has an amplified effect on the economy. However, there can be lags in the effectiveness of both policies, particularly with fiscal policy which requires legislative approval and implementation.

In What Way Are Monetary and Fiscal Policies Similar