Question

detailed description Fiscal Policy VS Monetary Policy

Answer 1

These two policies generally have a lot of impact in the economy . Fiscal policy is generally impact the fiscal components of economy and monetory policy is generally related to the money ,i.e impact of money demand and money supply in the economy .Fiscal policy have changes basically done by the government of the country while monetory policy have changes basically done by Central bank of that country . Let's concentrate deep into the matter -

Fiscal policy refers to the actions of a government—not a central bank—as related to taxation and spending. The debate about the impact of fiscal policy on the economy has been raging for over a century, but in general, it’s believed that higher government spending helps stimulate the economy, while lower spending acts a drag. At the same time, higher taxes are thought to limit economic growth, whereas lower taxes help stimulate it. Again, this is a matter of debate and opinions often vary based on an individual’s location on the political spectrum.

Government spending influences the economy in various ways. As an example, consider the case of a sluggish economy in which the government increases spending in certain areas, for instance, building new bridges.

“Monetary policy” is the blanket term used to describe the actions of a central bank in the United States, which is the U.S. Federal Reserve, often called the Fed. The Fed pursues policies that maximize both employment and price stability, and it operates independently of the influence of policymakers such as Congress and the President.

Within the Federal Reserve, monetary policy is set by the Federal Open Market Committee, which meets eight times a year to assess fiscal policies.

The primary tool central banks use to enact monetary policy is short-term interest rates. In the United States, this is referred to as the federal funds rate, or fed funds for short.

To influence the money supply and interest rates, the Fed has various tools. Some key ones include:

• Open market operations
• The discount rate
• Reserve requirements
• Interest on reserve balances