Importance of Fiscal and Monetary Policy of the Country’s Economic Development

Abstract

After the collapse of the Soviet Union and gaining independence, Georgia, as a transition economy country, faced many problems in the process of transition to a market economy, which required quick solutions and radical reforms. At such a time, it was necessary from the side of the state, on the one hand, to promote business activities and on the other hand, to implement economically necessary state regulation using such tools as fiscal and monetary policy.

In the modern world, the economic development of the country significantly depends on the fiscal and monetary policy, because in the conditions of the market economy, despite many other factors, its influence on the interest rate and aggregate demand is great. This is confirmed by Keynes' theory of liquidity preference, according to which the interest rate can balance the supply of money and the demand for money. At the same time, fiscal policy is a lever in the hands of the government that can influence the aggregate demand for goods and services in the short term.

The country went through a difficult, but more or less successful process of reforms, which adjusted the country's budgetary - tax and monetary credit systems. The mutual influence of these two regulation systems on each other is so great that their incorrect use may be harmful and hinder the economic development of the country.

The corona pandemic raging in the world in 2020-2021 showed us even more the role and importance of fiscal and monetary policy in the process of overcoming the economic crisis. Therefore, the purpose of the article is to analyze how important the mutual coordination of fiscal and monetary policies is for the positive management of macroeconomic processes, ensuring price stability and the economic development of the country.