Some macroeconomists thus have argued in recent years that monetary policy should be ‘rule-based’ rather than discretionary, that is, Central Bankers strictly would have to follow some kind of monetary policy rule without the authority to deviate from it. Thus in the intermediate range monetary policy is less effective than in the classical range. Fiscal policy relates to government spending and revenue collection. It has two key advantages over fiscal policy: • Speed and flexibility. The idea of ‘rule-based’ monetary policy is actually relatively old. • Isolation from political pressure. Changing monetary policy is a simple matter of setting a target federal funds rate, which the Federal Reserve does at regular meetings of the Federal Open Market Committee.In addition, the Fed can make large purchases of government bonds in the open market, which would tend to drive up the value of the bonds and thus lower interest rates. In this lesson summary review and remind yourself of the key terms and graphs related to the effects of fiscal policy actions in the short run. Original Question: Which policy is faster, fiscal or monetary? Monetary policy has become the dominant component of U.S. national stabilization policy. Os in the US. Fiscal Policy: Fiscal policy is explained in Fig. the Federal Reserve can buy and sell its own debt inflating the value of the dollar against the price of gold use that increased availability of dollars to pay off debt. cut one off and two grow back. Topics include how fiscal and monetary policy can be used in combination to close output gaps, and how fiscal and monetary policy affect key macroeconomic indicators such as output, unemployment, the real interest rate, and inflation. Compared with fiscal policy, monetary policy can be quickly altered. Before any assumptions or statements can be made on the topic, one must know the meaning of the terms fiscal and monetary policy. Differences Between Fiscal and Monetary Policy. Economic policy-makers are said to have two kinds of tools to influence a country's economy: fiscal and monetary. Why is monetary policy easier to undertake than fiscal policy? This independence of monetary policy is considered to be an important advantage compared to fiscal policy. Cutting government size and budget that is a Multi headed hydra. Fiscal policy is managed by government of any country by cutting or expanding collection of revenue through direct and indirect taxes influencing spending of the people, while monetary policies are managed by Central bank of any country which involves changes in interest rates and influencing money supply in the nation. Monetary policy does not answer to a congressional body. 16 in which the three range LM curve is taken along with six IS curves that arise after increase in government expenditure in the case of the Keynesian, intermediate and classical ranges. For example, when demand is low in the economy, the government can step in … The cause and effect chain occurs when changes in the money supply start to affect the interest rates. The basic objective is to aid the nations economy in adding jobs so it may reach fully employment. Monetary policy has become the major form of discretionary contracyclical policy used by the federal government. A source of conflict is that the Fed is independent and is not under the direct control of either the President or the Congress. Why is monetary policy easier to undertake than fiscal policy? In this case of sufficient monetary accommodation, rate of interest does not rise, and therefore there is no crowding-out effect on private investments, the expansionary fiscal policy brings about increase in national income equal to increase in government expenditure times the Keynesian multiplier (i. e., ∆G x … No Original Question Details Quora User’s answer is correct about the speed of implementation. Why Fiscal Policy is Generally Better than Monetary Policy.