Compare And Contrast Monetary And Fiscal Policy

Monetary and fiscal policies are the two most widely recognized fiscal tools used by the Government to help influence the nation’s economic activity. Monetary policy is mainly focused on the overall supply of money in circulation and the management of interest rates, this policy is usually implemented by the central bank such as the Federal Reserve. On the other hand fiscal policy is when the Government adjust its taxing and spending levels to influence the nation’s economy. The nation’s fiscal policy is determined by the Executive and Legislative Branches here in the United States.
Monetary Policy Monetary Policy is usually enacted by the Central Bank or the Federal Reserve in the United States, to assist with stimulating the economy into faster growth or slowing down growth. Monetary policy is referred to as either being expansionary or contractionary and it is implemented when there are fears of inflation or deflation. The idea is that, by incentivizing individuals and businesses to borrow and spend, monetary policy will cause the
Open market operations are when the Federal Reserve buys and sells government bonds to either add or subtract money from circulation, this task is handled on a daily basis. The second policy tool they use is setting the reserve requirements; this is the amount of money banks are required to keep on hand. This restricts the amount of money banks can lend out, so adjusting this amount directly influences the amount of money created when loans are made. Lastly the Federal Reserve can also dictate changes in the discount rate. The discount rate is the interest rate charged to financial institutions for loans received within a certain timeframe. This adjustent is intended to impact short-term interest rates across the entire