question archive What is fiscal policy and what is monetary policy?
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What is fiscal policy and what is monetary policy?
Fiscal Policy- this policy uses government spending and government tax revenues to influence the economy of a country. Government spending is through public sector activities while taxes are collected from the public and businesses. This policy can be expansionary to help an economy grow and contractionary to control inflation.
Monetary Policy- this policy uses changes in the interest rate and the money supply of an economy by its central bank. The interest rate affects the borrowing by the people of the country while the money supply is able to influence the spending levels and the level of inflation. This policy can also be contractionary and expansionary.