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what is Monetary and Fiscal Policy? Difference between Monetary and Fiscal Policy?



What is Monetary and Fiscal Policy?

Monetary policy =


It is the process by which central bank controls the supply of money targeting the rate of interest for the stability of the economy and the growth of the country.
Monetary policy is usually carried out by the Central Bank and involves:
Setting interest rates
Influencing the supply of money
The Central Bank has an inflation target. If they observe inflation is going above the inflation target, due to economic growth being too quick, then they will increase interest rates.
If the economy went into recession, the Central Bank would cut interest rates.

Fiscal policy =

It explains the government expenditures and revenue collection to influence the economy of the country it involves the change in tax rates and levels of government spending to influence aggregate demand in the economy.
Fiscal Policy is carried out by the government and involves changing:
Level of government spending
Levels of taxation
For increasing demand and economic growth, the government will cut tax and increase spending.
For reducing demand and reducing inflation, the government can increase tax rates and cut spending.

Difference between Monetary and Fiscal Policy

Monetary policy = It is the process by which central bank controls the supply of money targeting the rate of interest for the stability of the economy and the growth of the country.



 Fiscal policy = It explains the government expenditures and revenue collection to influence the economy of the country it involves the change in tax rates and levels of government spending to influence aggregate demand in the economy.
Monetary policy is usually carried out by the Central Bank and involves:
Setting interest rates
Influencing the supply of money

The Central Bank has an inflation target. If they observe inflation is going above the inflation target, due to economic growth being too quick, then they will increase interest rates.
Fiscal Policy is carried out by the government and involves changing:
Level of government spending
Levels of taxation

For increasing demand and economic growth, the government will cut tax and increase spending.

Setting interest rates
Influencing the supply of money

If the economy went into recession, the Central Bank would cut interest rates.

Level of government spending
Levels of taxation

For reducing demand and reducing inflation, the government can increase tax rates and cut spending.

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