conomy.Despite the effectiveness of the Fiscal policy, it does havedrawbacks. The major problems are timing and politics. It is hard topredict inflation and recession, and it can be a long period of timebefore the situation is even recognized. Because a tax cut can take ayear to really take effect, the economy could revive from therecession and the new unnecessary tax cut could cause inflation.Politics are another problem. Unlike the monetary policy runby the partisan Fed, the fiscal policy is initiated by the government,and so politics play a key role in the policy. When the concerns ofthe government are viewed, it becomes obvious that a balanced budgetis not the primary objective, anyway. The fiscal policy can also beused as a campaign tactic. If tax cuts are initiated and governmentspending is increased, then the president is more likely to bere-elected, but has first to deal with the inflation his tacticcaused.Monetary and fiscal policies are what helps keep the nation’seconomy stable. With them it is possible to control demand forservices and goods and the ability to pay for them. It is possible tomanipulate the money in private hands without directly affectingthem. The policies are simply a myriad of tools used to prevent a longperiod where there is high unemployment, inflation, and prices, alongwith low wages and investment....
