Also central banks reduced interest rates to

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Unformatted text preview: cy problems. Also, central banks reduced interest rates to unprecedented levels to underpin aggregate demand, and used nonconventional measures like quantitative easing and qualitative or credit easing. In spite of these efforts, credit remained tight and aggregate demand in many countries weakened rapidly. There were negative spill-overs from the weakening economies to those that had appeared more robust, and increased concern that the global economy might be moving into a period of deep and prolonged recession. Governments around the world therefore went beyond monetary policy measures by introducing large stimulative fiscal packages (*see table 2). In this context, questions were raised about the effectiveness of temporary fiscal policy actions in lessening the depth and duration of the slowdown, and about the potential long-run negative effects on the economy of the debt accumulation and its effectiveness in boosting employment and demand. When and why fiscal stimulus? Why monetary policies as the first line of defence? • The central monetary authorities can adjust monetary policy more quickly which responds without much time lag, than the government administration can adjust f...
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