Economists have argued that monetary policies a combination of low interest rates and either more government spending or less taxes can bring effective demand closer to potential output, reducing unemployment and idle capacity in the process.
There has, however, generally been more agreement on monetary policy than on fiscal policy. Many believe that an increase in government deficits generates expectations of future taxes, and so weakens the demand generating impact of these deficits. Although few argue that this renders fiscal policy totally powerless, the debate is more on the degree of effectiveness of fiscal policy.
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