Stabilization Policies. Part 1: Respond the following discussion:
Explain why stabilization policies are usually pursued using monetary rather than fiscal policy.
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Order Paper NowPart 2: Respond to classmate’s discussion:
“One of the advantages of using fiscal policy is that it helps to reduce the budget deficit but, it also includes raising taxes to help lower spending. Using monetary policy helps to reduce inflationary pressures when interest rates are raised. Raising interest rates has a bigger effect on homeowners with variable mortgage payments. Monetary policy will cut interest rates to try to stimulate spending and investments. It will also weaken the exchange rate which will help exports. In addition to cutting interest rates, quantitative easing is used to help increase the money supply, reduce bond yields, and avoid deflationary pressures. In effect, monetary policy is most widely used in order to fine-tune the economy. And by making minor changes to the interest rates, it is one of the biggest influencers in this economic cycle. “
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