Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy

Question

What will be an ideal response?

Answer 1

Accurately timing fiscal policy may be more difficult to accomplish than accurately timing monetary policy for two reasons. First, the time it takes to come to a decision is much longer for fiscal policy because the decision-making body is large and diverse. The president and a majority of Congress have to agree upon fiscal policy changes. Comparatively, the body that decides monetary policy is the Open Market Committee, which has 12 members. The smaller group has the ability to come to decisions more quickly.
Second, it can take longer to implement fiscal policy relative to monetary policy. If the fiscal policy change is a government purchase, it takes time to plan the purchase, bid the purchase, and to begin implementing the project. Monetary policy begins implementation with a directive to the trading desk to buy or sell Treasury securities.