CFA Level I · CFA Level I Exam · Fiscal Policy
Which statement about the coordination of fiscal and monetary policy is most accurate?
Central banks usually act on interest rates or the money supply, while governments use spending and taxation. These are separate institutions with different tools, which is why their policies can reinforce or offset each other. Fiscal policy typically faces longer legislative lags than monetary policy.
- AFiscal policy changes are always implemented faster than monetary policy changes.
- BMonetary policy is set by the legislature, while fiscal policy is set by the central bank.
- CCentral banks usually act on interest rates or money supply, while governments use spending and taxation.Correct
Explanation
Monetary policy is run by the central bank through rates and money supply; fiscal policy is run by the government through spending and taxes. Fiscal changes often have longer implementation lags because of legislative processes, so option A is wrong, and option B reverses the roles.
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