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Of course, fiscal and monetary policy can have a negative impact on you if, for example, taxes or interest rates rise. Although painful for you and your pocketbook, unpopular policies can be ...
Friedman's updated quantity theory also allowed for the possibility of using monetary or fiscal policy to remedy a major downturn. [91] Friedman broke with Keynes by arguing that money demand is relatively stable—even during a downturn. [90] Monetarists argued that "fine-tuning" through fiscal and monetary policy is counterproductive.
Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics theorised that government changes in the levels of taxation and government spending influence aggregate demand and the level of economic activity. Fiscal and monetary policy are the key strategies used by a country's government and ...
Monetary policy is a set of tools used by a nation’s central bank to control the overall money supply and promote economic growth and employ strategies such as revising interest rates and ...
Friedman also argued that monetary policy was more effective than fiscal policy; however, Friedman doubted the government's ability to "fine-tune" the economy with monetary policy. He generally favored a policy of steady growth in money supply instead of frequent intervention. [5]: 528
Driven by monetary policy; central bank sets interest rates consistent with a stable price level, sometimes setting a target inflation rate. [74] Driven by fiscal policy; government increases taxes on everyone to remove money from private sector. [4] A job guarantee also provides a NAIBER, which acts as an inflation control mechanism.
It was particularly suited to illustrate the debate of the 1960s and 1970s between Keynesians and monetarists as to whether fiscal or monetary policy was most effective to stabilize the economy. Later, this issue faded from focus and came to play only a modest role in discussions of short-run fluctuations. [6]
Milton Friedman, in a 2000s interview, maintained that "the debate was over" and that "everyone agrees fundamentally" with the notion of monetary-policy supremacy. [21] He stated that he still had "far more extreme views about the unimportance of fiscal policy for the aggregate economy than the [economist] profession does."