Strengths and weaknesses of using monetary policy

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Reference no: EM136694

Q1. Suppose that the government cuts taxes in response to a recessionary gap, but because of legislative delays the tax cut is not put in place for 18 months. Assuming that the government's objective is to stabilize output and inflation, use an AD-AS diagram to illustrate how this policy action might actually prove to be counterproductive.

Q2. Explain the strengths and weaknesses of using monetary policy in comparison to fiscal policy when promoting economic activity and preserving price stability. Please also put references so I can verify and if I need more information use them. Length 2 pages.

Reference no: EM136694

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