Answer to Question #267072 in Macroeconomics for Sharti Siral

Question

In 1.5 pages, review the fiscal and monetary policy actions adopted by Fiji to address the negative impacts on Inflation, discuss these policies and explain how these policies would address the negative impacts.

Answer 1

Tax hikes are part of the fiscal policy.

Bonds are being sold on the open market as part of the monetary policy.

In terms of fiscal policy, I Fiji raised taxes over other options such as boosting government spending or lowering taxes since higher taxes diminish people's disposable income, which reduces demand. Inflation will be reduced in the economy if demand is reduced.

Monetary policy: Fiji decided to sell the bonds on the open market in order to reduce the amount of money in the market. People will have less money in their hands, and their demand will be reduced as a result. reducing the rate of inflation