Monetary policy and fiscal policy are the two most well –known and widely implemented tools that are used to influence the growth and pace of the nation’s economic activity. These policies can collectively steer the economy towards better conditions. The monetary and fiscal policy both are very much important for the economy and both have different goals to achieve.
What is Monetary Policy?
- Monetary policy is an economic tool that primarily concerned with the management of interest rates. This also includes the total supply of money in the market and information of its circulation. Generally, the monetary policy is controlled by the central banks of the country, such as the U.S. Federal Reserve.
- Monetary policy aims to incentivize individuals and businesses to borrow and spend on investment,
What is Fiscal Policy?
- Fiscal policy is a collection of tools that governs the taxing and spending actions of governments for the nation. The policy is highly concerned about the tax revenues that help the state to spend on people in order to reduce poverty and unemployment.
- In order to increase business activity in an economy, the government spends money which is often referred to as stimulus spending. Such actions of the government can accelerate the economy by creating job opportunities.
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