Fiscal policy can have a greater impact from "summary" of The General Theory of Employment, Interest, and Money by John Maynard Keynes
Fiscal policy, when effectively implemented, has the potential to wield a more substantial influence on the economy compared to monetary policy. This assertion is rooted in the idea that changes in government spending and taxation can have a direct and immediate impact on overall demand in the economy. By adjusting these fiscal levers, policymakers can stimulate or cool down economic activity within a relatively short timeframe, thus exerting a more potent influence on the level of employment and output. The efficacy of fiscal policy lies in its ability to directly target specific sectors or groups within the economy that are in need of support or stimulation. For instance, increased government spending on infrastructure projects can create jobs in the construction industry, boosting employment levels and overall economic activity. Similarly, tax cuts for low-income households can enhance their purchasing power, leading to increased consumption and demand for goods and services. Moreover, fiscal policy can be more effective in times of economic downturns when private sector spending is insufficient to sustain full employment. In such circumstances, government intervention through increased spending or tax cuts can fill the spending gap and stimulate economic activity, thereby preventing a prolonged period of high unemployment and underutilized resources. In contrast, the impact of monetary policy, which operates through interest rate adjustments and credit availability, may be limited in certain situations. Central banks' ability to influence economic activity through monetary policy is constrained by the zero lower bound on interest rates and the existence of liquidity traps, which can render traditional monetary tools ineffective in stimulating demand and encouraging investment.- The concept of fiscal policy having a greater impact than monetary policy stems from its direct, targeted, and immediate effects on economic activity. By utilizing fiscal levers judiciously, policymakers can effectively manage aggregate demand, support employment, and promote economic growth, especially in times of economic distress or recession.
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