to increase invesment? change monetary or fiscal policy?

Question

i was thinking that the feds can change the monetary policy by increasing int rate to increase invesment, but on the other hand. the gov't can change the fiscal policy by lowering taxes to increase invesment too... which would the govt likely do?

Answer 1

The terms "monetary policy" and "fiscal policy" mean the same thing. Your proposed actions are simply 2 different examples of monetary or fiscal policy.

Bear in mind that increasing interest rates will tend to increase investment in interest bearing instruments such as bonds but will decrease investment in non-interest bearing instruments such as stocks.

Depending upon which taxes are lowered there may be little or no shift in investment since not all taxes affect investment strategies aside from possibly making more funds available for investment. Not every taxpayer will use the extra funds for investments -- more will probably buy an extra six-pack than put it in a mutual fund.

Tax cuts may also target what investments are more attractive. For example, cutting capital gains taxes may increase stock fund investments but will have a chilling affect on bonds. On the other hand, cutting marginal tax rates will make bonds and short term stock investments more attractive but will have little affect on long-term stock investments since capital gains taxes are not affected by cutting marginal rates.