Question

Comapre and contrast Monetary policy, with fiscal policy. give 2 examples of each.

Answer 1

1. The policy of the government in which it utilizes its tax revenue and expenditure policy to influence the aggregate demand and supply for goods and services in the economy is known as Fiscal policy.

The policy through which the central bank controls and regulates the money supply in an economy is known as Monetary policy.

2. Fiscal policy is carried out by the national government / Ministry of finance, while monetary policy is administered by the central bank of the country.

3. Fiscal policy is for short period while, monetary policy impact lasts longer.

4. Fiscal policy gives economy direction while, Monetary policy brings price stability in the economy.

5. Fiscal policy is concerned with government expenditure and revenue, whereas monetary policy is concerned with borrowing and financial arrangements.

6. Major fiscal policy instruments are tax rates and Government spending.

Major Monetary policy tools are Interest rates and credit ratios.