Explanation:
According to macroeconomic principles highlighted in recent BIS reports, fiscal consolidation (reducing government deficits) helps to cool down aggregate demand. This action works in tandem with, and supports, monetary policy tightening (raising interest rates) to achieve the common goal of reducing inflationary pressures and promoting sustainable economic growth.
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Q.73 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
A. Fiscal consolidation counteracts monetary tightening.
B
B. Fiscal consolidation supports monetary tightening.
C
C. Fiscal and monetary policies have no significant interaction.
D
D. Fiscal consolidation is relevant for high-debt countries.
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