There is a difference between fiscal policy and monetary policy as it relates to economic policy in the United States. The monetary policy deals with the amount of money in the economy and the rate of interest that is charged on a loan. In the United States, the Federal Reserve Board makes decisions that impact interest rates and the amount of money in the economy. If the economy is sluggish, the Federal Reserve Board may lower interest rates to encourage people to borrow money to buy products and to invest in new businesses. When more people take out loans, it increases the amount of money in the economy and should help people have access to more money, which should increase demand for products. The reverse would be true if the economy was too strong, as the Federal Reserve Board would increase interest rates, which would decrease the money supply and slow the economy and the demand for products.
Fiscal policy is something that the government determines and includes decisions on government spending and the amount of taxes levied. When the economy is slow, the government could reduce taxes and increase government spending. Increasing government spending will increase the amount of money in the economy, while lowering taxes will allow people to spend more money, also increasing the amount of money in the economy. The reverse would be true if the economy was too strong. The government would increase taxes and reduce the level of government spending.
https://www.economicshelp.org/blog/1850/economics/difference-between-monetary-and-fiscal-policy/
https://www.federalreserve.gov/faqs/money_12855.htm
Monday, July 23, 2012
In terms of economic policy in the United States, describe the difference between fiscal policy and monetary policy.
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