Question

answer must be a minimum of two paragraphs

What is the difference between monetary policy and fiscal policy? Which is more effective to regulate economic activity over time, monetary or fiscal policy?

Answer 1

Both the monetary and fiscal policy are used to control the cyclical fluctuation of an econoy but fiscal policy is mainly refers to the change in govt spending and taxation on the other hand through monetary policy uses money market demand supply and chnages the interest rate to control the economic fluctuation. Fiscal policy is mainly two types which are Increase/decrease govt spending and/or decrease / increase taxation ,but there are so many monetary policy measures like open market operation , change in interest rate, quantitive easing . Fiscal policy is controlled by the govt on the ther hand, monetary policy is controlled by thr central bank mainly.

In long run , though both of the monetary and fiscal policy aims to the same thing of ontrolling economic fluctuation using monetary polci we can gain minute changes in the economy according to the situation by chnaging interest rate thus we can say that in long run monetary policy is more effective or mainly known as fine tuner of economy.