Difference between Fiscal Policy and Monetary Policy
Basis |
Fiscal Policy |
Monetary Policy |
---|---|---|
Meaning |
Fiscal policy refers to the government’s use of taxation and spending to influence the economy. |
Monetary policy refers to the actions taken by a country’s central bank to manage the money supply, interest rates, and credit conditions in the economy. |
Authority |
Fiscal policy is decided by the government through laws. |
Monetary policy is set by central banks independently. |
Tools |
Fiscal policy uses government spending and taxes. |
Monetary policy controls interest rates and money supply. |
Implementation |
Fiscal policy works through government spending and tax laws. |
Monetary policy changes interest rates and buys or sells government stuff. |
Time Lag |
It takes time for fiscal policy effects to show in the economy. |
Monetary policy can quickly impact the economy. |
Targeted Measures |
Fiscal policy can focus on specific areas or groups. |
Monetary policy affects the whole economy. |
Objectives |
Fiscal policy aims to help the economy grow, control prices, and reduce unemployment. |
Monetary policy keeps prices steady, protects money value, and ensures jobs for everyone who wants one. |
Decision Making |
Elected officials and government bodies decide fiscal policy. |
Central bank authorities decide monetary policy on their own. |
Difference between Fiscal Policy and Monetary Policy
Governments and banks have ways to manage money and keep the economy stable. Fiscal policy means how governments spend money and collect taxes to help the economy grow. Monetary policy, run by banks, is about controlling interest rates and how much money is available to achieve similar goals.