Monetary Policy vs. Fiscal Policy

As we previously said, the monetary policy it is a tool used to control the flow of money in the economy and the fiscal policy is a way of the government to influence the economy. Both fiscal and monetary policy play a big part on our economy, however the question still remains: Which one is more effective?

Reasons why monetary policy is more effective:

• Since its set by the Central Bank, it has less political influence;
• Fiscal policy can have additional supply side effects on the wider economy;
•  According to monetarists, expansionary fiscal policy is likely to create crowding out- increment on  government spending reduces private sector expenditure, and higher government borrowing pushes up interest rates;
• Expansionary fiscal policy might lead to unusual interest groups pushing for spending which isn’t helpful and proves difficult to reduce when the recession is over;
•   Monetary policy is quicker to implement.

Reasons why fiscal policy is more effective:

• Targeting inflation is too narrow;
•  Cutting interest rates may prove insufficient to increase demand because banks don’t want to lend and consumers are too nervous to spend;
• creating money may be ineffective if banks just want to keep the extra money on their balance sheets;
• Government spending directly creates demand in the economy and can provide a kick-start to get the economy out of recession.

Even thought the Monetary policy and fiscal policy together have great influence over a nation's economy, which one do you believe to be more effective?

source: economicshelp