Fiscal policy is the use of government spending and taxation to influence the economy. It is implemented by the legislative branch of government.
- Increased government spending can boost economic growth by putting more money into circulation.
- Tax cuts can also boost economic growth by putting more money into the pockets of consumers and businesses.
- Fiscal policy can be used to reduce budget deficits or surpluses.
Monetary policy is the use of interest rates and other tools to control the money supply and credit availability. It is implemented by the central bank.
- The central bank can raise interest rates to slow down economic growth and inflation.
- The central bank can lower interest rates to stimulate economic growth and reduce unemployment.
- Monetary policy can also be used to stabilize the financial system.
Here is a table summarizing the key differences between fiscal and monetary policy:
