Help with economics homework?

So it is the last week of classes and I am having issues answering part of my economics homework. You don't have to answer it for me but if someone could set me on the right track to answering this question, it would be appreciated. At the moment, I'm clueless

In Chapter 12 we learned about Fiscal Policy--how the government uses its budget to expand or contract the economy. Chapter 14 introduces us to Monetary Policy-how the Federal Reserve System uses control of the availability and cost of money (i.e. the interest rate) to expand or contract the economy. Explain why Monetary Policy is an indirect method of influencing the economy versus Fiscal Policy which is a direct method.


Wow. . . The first answer pretty much rocks. Thanks for your help

4 Answers

  • 1 decade ago
    Best Answer

    When interest rates are low (monetary policy) people are more likely to invest (buy new capital). Monetary policy is carried out by the Fed, while fiscal policy is carried out by the government. The government invests directly into programs to stimulate the economy (building new roads, buildings and programs), the Fed just decreases/increases the interest rate (decreases in this case) which encourages people to invest.

    Source(s): College econ student
  • 1 decade ago

    Oh well, just think about it. The monetary policy influence in the speed of the money into people hands with the interest rate and bonds. The more velocity, the more people will get money, the more the speed, the more of sells, the more of spending, more income, the more of taxes will get the government. Then the government can expand even more the economy by using that money investing and improving in public education, health, streets, creating more jobs, more income. If this cause at the end a high inflation, then the fiscal policy can influence it by contracting the economy to balance it, and the monetary policy can do it too by increasing the interests or with the bonds taking out the cash money from the public and therefore, the velocity will decrease to balance everything.The whole economy work by both, one influences in the other and viceversa.

  • 4 years ago

    Actually, try the economics section. I think the reserve ratio should be increased, that way banks have to keep more money and loan out less, decreasing the money supply and raising the interest rate. Or something.

  • Anonymous
    1 decade ago

    Exactly what Hereese says.. No need to say more

    Source(s): college econ also XD
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