monetary policy and fiscal policy

Monetary and fiscal policy

What is the difference between monetary policy and fiscal policy, and how are they related
“Monetary policy is a term used to refer to the actions of central banks to achieve macroeconomic policy objectives such as price stability, full employment, and stable economic growth. In the United States, the Congress established maximum employment and price stability as the macroeconomic objectives for the Federal Reserve; they are sometimes referred to as the Federal Reserve’s dual mandate. Apart from these overarching objectives, the Congress determined that operational conduct of monetary policy should be free from political influence. As a result, the Federal Reserve is an independent agency of the federal government. Fiscal policy is a broad term used to refer to the tax and spending policies of the federal government. Fiscal policy decisions are determined by the Congress and the Administration; the Federal Reserve plays no role in determining fiscal policy.”

Difference Between Fiscal Policy and Monetary Policy

Basis for Comparison Fiscal Policy Monetary Policy
Meaning The tool used by the government in which it uses its tax revenue and expenditure policies to affect the economy is known as Fiscal Policy. The tool used by the central bank to regulate the money supply in the economy is known as Monetary Policy.
Administered by Ministry of Finance Central Bank
Nature The fiscal policy changes every year. The change in monetary policy depends on the economic status of the nation.
Related to Government Revenue & Expenditure Banks & Credit Control
Focuses on Economic Growth Economic Stability
Policy instruments Tax rates and government spending Interest rates and credit ratios
Political influence Yes No

What’s the difference between monetary policy and fiscal policy?

Difference between monetary and fiscal policy



Interaction between monetary and fiscal policies
“Fiscal policy and monetary policy are the two tools used by the state to achieve its macroeconomic objectives. While for many countries the main objective of fiscal policy is to increase the aggregate output of the economy, the main objective of the monetary policies is to control the interest and inflation rates. The IS/LM model is one of the models used to depict the effect of policy interactions on aggregate output and interest rates. The fiscal policies have a direct impact on the goods market and the monetary policies have a direct impact on the asset markets; since the two markets are connected to each other via the two macrovariables output and interest rates, the policies interact while influencing output and interest rates.”
G20 to call for fiscal, monetary, structural policies to boost growth – Japan

What Are Structural Policies?