Students helping students, join us in improving Bored of Studies by donating and supporting future students!
usually monetary is considered the blunt instrument, not fiscal.I turn now to other arguments, not that monetary policy is ineffective, but that it is not terribly precise. One common expression is that it is a blunt instrument. People rarely define what they mean by that term, but I think they have in mind two things. First, if inflation is rising because particular prices are moving a lot, monetary policy cannot focus precisely on exactly those particular prices, or those particular features of economic behaviour causing the price rises. It is a general, rather than specific, instrument in that sense. Second, I think that when people say ‘blunt’, they mean ‘unfair’ – particularly that when interest rates rise, this affects households who owe money on a home loan. (Presumably the same argument would mean that it is equally unfair to savers to put interest rates down when the economy is weak.)
because it affects the macro economy, but not necessarily any particular component of the economy. E.g. it would be like painting the mona lisa with a paint roller.mungi said:what does this term mean? isnt monetary and fiscal policy considered a 'blunt tool'. Thanks in advance