Explanation:
In the context of the BIS Annual Economic Report and overarching macroeconomic policy, coordinated efforts are required to fight high inflation while sustaining economic stability. Monetary policy tightening (e.g., raising interest rates) aims to cool down aggregate demand. Fiscal consolidation (i.e., reducing budget deficits through lower government spending or higher taxes) works in tandem with this objective by similarly dampening demand. Thus, fiscal consolidation supports monetary tightening, reducing the burden on central banks to hike rates excessively to control inflation.
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Q.37 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.