Map of Nakuru on Some economists fiscal policy 301 believe that even if the government tried to stabilize the economy with fiscal-policy instruments, the FEDERAL RESERVE could counteract it through the monetary channels. The Federal Reserve affects the course of the economy through the monetary policy instruments to keep the economy as close as possible to its potential level. They could perceive a fiscal policy change as another shock and try to counteract it. For example, if the government cuts taxes to expand the output, the Fed could counteract it by a contractionary move to reduce output. Furthermore, a restrictive monetary policy could more than offset the expansionary effects of fiscal policy, or vise versa, and pull the economy in the opposite direction. Yet, the two policies could work in the same direction. For example, a tax cut accompanied with lower short-term interest rates will stimulate the economy through fiscal and monetary channels to boost spending, which in turn boosts output. Map of Nakuru 2016.
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