Fiscal Policy vs. Monetary Policy?

Question

Explain the difference between fiscal policy and monetary policy. Provide specific examples of how the government utilizes each type of policy in an attempt to maintain a stable, productive economy. Provide insight into why some economists believe one is more effective than the other.

Answer 1

Fiscal Policy

Answer 2

In a nutshell, monetary policy is about how much money the gov't prints. Fiscal policy is about how much the gov't spends and collects in taxes. Fiscal policy to stimulate the economy usually fails because it creates a lot of inflation. Monetary policy can be set to balance inflation and economic growth so monetary policy is favored. The US has stopped using fiscal policy to stimulate the economy since Carter left office. Good monetary policy under Greenspan produced the economic expansion of the 80's and 90's

Answer 3

Fiscal policy usually refers to decisions of the Executive branch regarding how our government manages its spending. Should we spend more than we bring in (deficit spending)? Should we attempt to balance the budged? Should we raise taxes or lower them or change who gets taxed? How much aid should we give to other countries? Should we spend half a trillion dollars that we don't have on an unwinnable war in order to enrich friends in the defense and oil industries, even if it means saddling the next two generations with even more debt?

Whereas monetary policy usually refers to Federal Reserve decisions regarding interest rates and money supply. The Fed can set the interest rate at which banks can borrow money from it, and this typically effects other rates throughout the economy. When rates go up it typically slows down the economy a bit, and helps to keep inflation in check. Money Supply has to do with how much money is in circulation. If the Fed prints more money they are "expanding" money supply and with more money available it gives the economy a boost, but also has the possibility of increasing inflation.

Answer 4

I'm not doing your homework for you. Fiscal policy is taxes and government spending. Monetary policy is bank regulation and the supply of money in circulation. (The reserve requirement, that banks have to deposit with the Federal Reserve and which keeps credit from getting out of hand.)

The concern is with inflation, and control of the federal budget. Of course the present Administration is spending at such a rate as to create a deficit bubble -- owed abroad (to China, etc.). This creates an issue that did not exist when Americans owed the federal debt to themselves and they could retire it by taxation and transfer payments.

Now they have to pay it with real money to foreigners, which means that we really are borrowing at the expense of future generations.

Answer 5

This sounds like an essay question. I am calling your professor.