Advantages And Disadvantages Of Monetary Policy
The major disadvantages of monetary policy on the other hand are: (i) Monetary policy cannot be directed for direct spending in the areas of infrastructure and spending may be wasted in speculations. (ii) The policy is applicable nationally, cannot be applicable to specific states or areas.
Based on your analysis, does conducting fiscal and monetary policy result in the same impacts on inflation or output levels? Be sure to talk about the tradeoffs (or lack thereof) that exists between inflation and output in the short and long run.
In the short run society faces a trade-off between output and inflation. For example, if the monetary policy makers ( Bank of Canada or any other Central Bank) and government wishes to expand the economy by shifting the aggregate demand curve (Increases in the money supply, increases in government spending, or cuts in taxes expand aggregate demand), then that increases output but that comes with increasing price level or inflation. On the other hand, if the policymakers contract aggregate demand, that lowers inflation but that also reduces output, temporarily. However, in the long run this trade off might not exist as In the long run, expected inflation adjusts to changes in actual inflation, and the short-run Phillips curve shifts. As a result, the long-run Phillips curve is vertical at the natural rate of