Explain why stabilization policies are usually pursued using monetary rather than fiscal policy. Monetary Stabilization Policies


Central banks use monetary and fiscal policies to control economic growth. However, the use of monetary policy is superior to fiscal mechanisms as it can be used to control and facilitate the economy out of recession. Central banks target some level of inflation, such as imported inflation, which is easily controlled by devaluing the currency. A weak currency discourages imports but encourages exports, which is good for the country. Furthermore, the monetary system is used more because there is little political interference in its approach to maximum employment and price stability. It is prudent to keep the central bank away from any political control that might negate its authority, so the central bank opts for an apolitical approach to economic growth.

Explain why stabilization policies are usually pursued using monetary rather than fiscal policy. Monetary Stabilization Policies


Central banks use monetary and fiscal policies to control economic growth. However, the use of monetary policy is superior to fiscal mechanisms as it can be used to control and facilitate the economy out of recession. Central banks target some level of inflation, such as imported inflation, which is easily controlled by devaluing the currency. A weak currency discourages imports but encourages exports, which is good for the country. Furthermore, the monetary system is used more because there is little political interference in its approach to maximum employment and price stability. It is prudent to keep the central bank away from any political control that might negate its authority, so the central bank opts for an apolitical approach to economic growth.

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