How do Monetary Policies Combine in the Economy

bad-economyHaving looked at how it is that both monetary and fiscal policies have an individual ability to control the supply of money within an economy, and therefore the short term demand of the markets themselves, we can now look at how the individual combinations of these two policies can impact the economy as a whole in terms of interest rates, currency values, demand, and private business growth.

Expansionary Fiscal and Monetary Policies

By implementing both an expansionary monetary and fiscal monetary policy, the government is taking all measures available to increase the market’s access to money. This is accomplished by both directly stimulating the market, and improving the ability of institutions to lend. The results of this sort of strategy will be that interest rates will generally lower due to the ease of lending, while demand will increase, and private business will expand to meet that demand. From there, currency values will generally increase as foreign investors pay to invest in the growing market, and for the right to borrow the new funds. Continue reading