What is the role of monetary policy in alleviating economic downturns? Q.What is the role of monetary policy in alleviating economic downturns? A.Economists view monetary policy as the first line of defense against economic slowdowns—the Federal Reserve can act faster than the president or Congress, and it is better equipped to judge the appropriate timing and magnitude of economic stimulus. Read more about What is the role of monetary policy in alleviating economic downturns?
What characteristics make fiscal stimulus most effective? Q.What characteristics make fiscal stimulus most effective? A.Fiscal stimulus can raise output and incomes in the short run. To have the greatest impact with the least long-run cost, the stimulus should be timely, temporary, and targeted. Read more about What characteristics make fiscal stimulus most effective?
How do taxes affect the economy in the long run? Q.How do taxes affect the economy in the long run? A.Primarily through the supply side. High marginal tax rates can discourage work, saving, investment, and innovation, while specific tax preferences can affect the allocation of economic resources. But tax cuts can also slow long-run economic growth by increasing deficits. The long-run effects of tax policies thus depend not only on their incentive effects but also their deficit effects. Read more about How do taxes affect the economy in the long run?
