If we remember back to the days of the global financial crisis, one of the earliest and hardest hit countries in the European area was Iceland. Iceland was also the only country which made the fateful decision to not bailout the three largest banks in their country. This was not because they simply said ‘no’ like they did afterwards to the demands of the creditors of these banks in the UK and the Netherlands, but they simply could not afford to bailout these banks which held 10 times GDP worth of assets. By choosing not to bailout the banks it didn’t mean the domestic financial payments system collapsed as well, and without good reason detailed further in the article.
If I were to use an analogy to demonstrate the effects of monetary policy and fiscal policy on the economy I would first say the economy is much like a car and GDP is much like the speed at which the car is driving at. The key assumptions are that the car is driving on an infinitely straight highway and it is equipped with 2 accelerator peddles each with its own gearbox. Why 2 accelerator peddles?