Monetary Policy Vs Fiscal Policy

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Fiscal policy is the government decisions about taxing and spending money. It's a different tactics to monetary policy through where a central bank influences a nation's money supply through T-bills, control of interest rates, and reserve ratio. These two policies are used in various combinations to direct a country's economic state and future goals. A country changes its fiscal policy in accordance to the state of the economy, from recessions, to upturns, to peaks and troughs. Both are useful tools in order to monitor a country's use of money and current and future economy. The United States, in particular, uses their own brand of fiscal policy after WWII and the great depression; as well as having developed their own use of monetary policy …show more content…
The official goals usually include relatively stable prices and low unemployment (Pierre-Luc). Unlike fiscal policy which is used to affect the supply of the people's money, monetary policy is used to influence outcomes within the economy by way of the central banks influence. The central bank also known as the reserve bank is the entity responsible for overseeing the monetary system of a nation by issuing currency, selling bonds, and governing the interest rate. The types of monetary policy are broken down into expansionary and contractionary policy; one increasing the amount of money a business or individual may be able to obtain and one to restrict the flow of money. Expansionary policy is of course used in economic recessions or downturns to stimulate the economy while as contractionary policy is used in times of prosperity. To increase the money supply in economic downturns, the Federal bank would take a Expansionary monetary approach by lowering the interest rate in order to encourage more loans, buy government bonds also known a T-bills, or lower the reserve ratio which in turn encourages banks to give out loans and increase the money supply. An increase in the money supply would result in a decrease in the unemployment rate up to the point of inflation rising to high in a process known as aggregate demand. If inflation becomes a problem within the economy the Federal Reserve would take a contractionary Monterey policy approach to the situation, or, in other words, try to decrease the money supply within the country. The Federal Reserve would try to accomplish this by selling government bonds, raising the interest rate, and raising the reserve ratio. If interest rates rise it discourages the people from taking loans because loans
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