How can fiscal and monetary policies compliment or work against each other?
Answer:
They complement each other by trying to achieve the same goal of raising or lowering the Planned Total Expenditure which affects GDP. Monetary polices depend on the money supply and the Federal Reserve buying or selling bonds which effects money supply. The Fiscal policy depends on the government raising and cutting taxes or government spending.
They complement each other by the monetary policy affect all aspects of the market while fiscal can single out a specific section of the economy.
They can work against each other by their effectiveness is limited. A increase in government spending can go so far and then people might expect higher taxes. Also a tax cut for political reasons might increase the problem of inflation when the Fed is doing what it can to control it.
a fiscal policy of expansion is to increase gov purchases. this puts pressure on prices and may lead to inflation to fight it the central bank increases prime rate which tends to lower investment and slow the economy
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