Question

What is the difference between fiscal and monetary policy? Give examples of each.

Answer 1

Answer:- The difference between Fiscal and Monetary policy are-

1. Meaning- Fiscal Policy is when the government changes taxes on government investments to influence the level of economic activity. Whereas Monetary Policy is when the Federal reserve bank try to influence the money supply in order to maintain the economy.

2. Principles- Fiscal Policy manipulating the level of accumulated demand in the economy to accomplish economic objectives of price stability, full occupation, and economic growth. Whereas Monetary Policy manipulating the amount of money to influence results like economic growth, exchange rates with other currencies and unemployment.

3. Nature- Fiscal Policy changes every year after analyzing the previous year's results. Whereas Monetary Policy doesn't change as per a specific period; rather it changes at any time the economy needs the change.

4. Controlled by- Fiscal Policy is controlled by the Ministry of Finance of the country. Whereas Monetary Policy is controlled by the Central Bank of the country.

5. Focuses on- Fiscal Policy focuses on Economic Growth. Whereas Monetary Policy focuses on Economic Stability.

6. Related to- Fiscal Policy is related to the Goverment revenue and expenditure. Whereas Monetary Policy is related to the Banks and credit control.

7. Implementation- Fiscal Policy is implemented by the realm of Congress and the president. Whereas Monetary Policy is devised and implemented by the Federal Reserve.

8. Complexity- Fiscal Policy is comparatively less complex. Whereas Monetary Policy is comparatively more complex.

9. Political Influence- Political influence in the Fiscal Policy. Whereas No Political influence in the Monetary Policy.

10. Examples- Examples of Fiscal Policy include: Taxes and amount of government spending. Whereas Examples of Monetary Policy include: Interest rates, reserve claim, open market operations, discount window, currency peg, quantitative allay and signaling.