of money on goods and services, all of which is released into the economy. Despite the effectiveness of the Fiscal policy, it does have drawbacks. The major problems are timing and politics. It is hard to predict inflation and recession, and it can be a long period of time before the situation is even recognized. Because a tax cut can take a year to really take effect, the economy could revive from the recession and the new unnecessary tax cut could cause inflation. Politics are another problem. Unlike the monetary policy run by the partisan Fed, the fiscal policy is initiated by the government, and so politics play a key role in the policy. When the concerns of the government are viewed, it becomes obvious that a balanced budget is not the primary objective, anyway. The fiscal policy can also be used as a campaign tactic. If tax cuts are initiated and government spending is increased, then the president is more likely to be re-elected, but has first to deal with the inflation his tactic caused. Monetary and fiscal policies are what helps keep the nation’’s economy stable. With them it is possible to control demand for services and goods and the ability to pay for them. It is possible to manipulate the money in private hands without directly affecting them. The policies are simply a myriad of tools used to prevent a long period where there is high unemployment, inflation, and prices, along with low wages and investment. ...
