What is the difference between monetary policy and fiscal policy? Give an example of each type of...

Question:

What is the difference between monetary policy and fiscal policy? Give an example of each type of policy from recent current events.

Fiscal policy versus monetary policy:

Government can affect the macro-economy mainly using two specific policy tools namely: fiscal policy and monetary policy. Fiscal policy is basically the budget policy of government and is basically implemented using government spending or net taxes. An increase in government spending or a reduction in net taxes or a combination of these two, are expected to boost output and are referred to as expansionary fiscal policy, whereas a reduction in government spending or an increase in net taxes or a combination of these are expected to contract an economy and are referred to as contractionary fiscal policy. While on the other hand, monetary policy, mainly coordinated by the central bank, is mainly concerned about money supply and interest rates. The central bank can increase money supply thereby reducing interest rates which has an expansionary effect on output. The opposite is what is known as contractionary monetary policy.

Answer and Explanation:

The main difference between fiscal policy and monetary policy is that fiscal policy is mainly concerned about government spending and its policies...

See full answer below.

Become a Study.com member to unlock this answer! Create your account

View this answer

Learn more about this topic:

Loading...
What is Fiscal Policy? - Definition, Effects & Example

from American Government: Help and Review

Chapter 19 / Lesson 7
138K

Related to this Question

Explore our homework questions and answers library