Answer to Question #63343 in Macroeconomics for dennis

Question

fiscal policy needs monetary policy to be fully effective illustrate this statement using the IS-LM MODEL

Answer 1

For example, stimulative fiscal policy will move IS curve to the right. It will increase the level of output. On the other hand, the interest rate is also going to grow. In order to increase the output and remain the interest rates on stable level, it is important to conduct also stimulating monetary policy. That is why these two types of macroeconomic policies are interdependent.