Question

The United States has developed a economic system with independent Monetary and Fiscal Policy. Other nations have Fiscal and Monetary policy conducted by the same set of people. Which do you prefer and why?

Answer 1

Ans:- Monetary policy and fiscal policy are most widely accepted policies used to stimulate a country's economic activity aiming at economic growth and controlling inflation. Both policies are based on macro- economic principles advocating economic growth.

Monetary policy advocates impact of changing interest rates and its influence on the supply of money in circulation in a nation, and it is generally managed and controlled by monetary authorities specifically called central bank.(in U.S it is called Federal Reserve).As per this monetary policy the major function of the central bank includes

a) Setting the base rate of interest rate and b) influencing on the supply of money in circulation.

 Whereas Fiscal policy advocates the policy of changing tax rates and government spending and it is generally determined by government intervention specifically called the legislative part of the government.

The major difference between the monetary and fiscal policy is that the monetary policy is set by central bank and the fiscal policy is set by government legislation. As the monetary policy is set by central bank, it is independent from political intervention and policies and it is quicker to implement by setting the interest rate over a period of time and on other hand fiscal policy is concerned it take time to implement a legislative decision to increase government spending and changing tax rate to reduce inflation. Therefore monetary policy becomes popular among the nations and widely accepted for economic growth and controlling inflation as compared to fiscal policy.