Because these options involve alternative policies, the standard framework should provide appropriate guidance about projected outcomes - ceteris paribus, of course. I focus on two ways in which fiscal policy choices could affect monetary policy. First, fiscal policy choices will affect the interest rate consistent with full employment and price stability.
Second, a gradual reduction and ultimate retirement of the federal government debt would require changes in the way monetary policy is implemented. The analytics of the policy mix The policy mix is a very useful device for understanding the interaction of monetary and fiscal policies. There are infinite combinations of monetary and fiscal policies that yield the same level of aggregate demand.