Question

When the economy falters, people often look to the government to help push the economy forward again. In fact, the government uses many different tools to try to affect the economy. Economists classify these tools on the basis of two different types of policy _________.

Answer 1

Monetary policy and Fiscal policy

Step-by-step explanation:

There are two types of policies that the government uses to affect the economy. The first one is

1) Monetary policy is the use of changing interest rates or money supply to to affect the economy. For example if a government wants to slow down an economy they will increase interest rates so that the demand for money decreases and there is less investment in the economy. This is known as Contractionary monetary policy.

2) Fiscal policy is when the government changes tax rates or government spending in order to affect the economy, so if a government wants to boost an economy it will lower taxes to encourage business and this is known as expansionary fiscal policy.