Question

Explain the impact of fiscal & monetary policy on internal & external balance.

Answer 1

Answer:

Stability in the economy can be grouped into three, namely the stability of the market for goodsand services, the stability of the money market and the foreign market stability. The purpose of this study wasto analyze the internal and external equilibrium model of the economy in the short-term preferences fiscal andmonetary policy strategy. The analysis method in this research is using error correction model of Engle Granger(ECM-EG), which estimates the short-term equations. The results of analysis shows that fiscal policy and mon-etary policy provide significant multiplier effect to stimulate aggregate demand through increased consumption,investment, government consumption, exports and imports. Mundell-Fleming theory is an analytical frameworkthat is used to explain the international transmission due to the influence of the global economy to a small openeconomy of the countries.

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