Do monetary and fiscal policy have total control in the economy of the country?

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thanatassa eNotes educator| Certified Educator

Monetary and fiscal policy are important parts of a country's economy, but they are not the only things that affect it.

First, countries do not exist in isolation. If a country is a net importer of raw materials, for example, the resource prices set by exporters in other parts of the world can lead to either inflationary or deflationary pressures. Similarly, net capital inflows and outflows affect a country's economy, and both of those depend on global as well as local economic factors. 

Technological change can also affect a country's economy, leading to increased productivity, which may increase GDP, but also potentially increasing unemployment. 

Political factors and regulatory environment can also affect the economy of a country. Businesses may be unwilling to invest in countries known for bribery and corruption, or take money out of countries undergoing periods of radical political instability; for example, few people or countries are willing to invest in Syria right now, due to the ongoing civil war. Regulations can either act as a positive economic factor, guaranteeing transparency, intellectual property rights, and the rule of law, or increase the cost of doing business. States can also use tax breaks or subsidies to influence the growth of certain industries.

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