What works best – monetary policy or fiscal policy?
The FOMC uses monetary policies to react to a slowing economy by expanding the money supply, lowering interest rates, and thus encouraging increased spending. The FOMC reaction to increasing inflationary pressures is to decrease the money supply, raise interest rates, thereby slowing growth in spending. Another set of policy options, fiscal policy, is the taxing and spending policies of the federal government. Those policies also have the potential to influence economic conditions whether deliberately or as an unintended consequence of changes in taxes and spending adopted for reasons other than to influence economic conditions. If the economy is entering a recession, the fiscal policy response might be to increase government spending and to lower taxes. If spending in the economy is growing too rapidly, the fiscal response might be to decrease government spending and to increase taxes. For more information about U.S. fiscal policies, go to this webpage [9] . [Note to teacher: The abov
