Explanation:
Fiscal consolidation involves reducing government deficits and debt accumulation, typically through decreased public spending or increased taxation. When fiscal consolidation aligns with monetary policy tightening, it can enhance the effectiveness of monetary policy in controlling inflation. This coordinated approach helps reduce aggregate demand, thereby alleviating inflationary pressures.
A is incorrect: Fiscal consolidation works in the same direction as tightening.
C is incorrect: Fiscal and monetary policies interact significantly, and their coordination is crucial for effective macroeconomic management.
D is incorrect: Fiscal policy has broader implications for aggregate demand and inflation.
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Q.6377 The BIS Annual Economic Report 2024 emphasizes the need for coordinated policy responses to achieve sustainable economic growth and low inflation. Which of the following most accurately describes the relationship between fiscal consolidation and monetary policy tightening in this context?
A
Fiscal consolidation counteracts monetary tightening.
B
Fiscal consolidation supports monetary tightening.
C
Fiscal and monetary policies have no significant interaction.
D
Fiscal consolidation is only relevant for high-debt countries.
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