Similarities Between Monetary Policy And Fiscal Police

Fiscal and monetary police are two of the most powerful tools that impact a nation’s economic activity (Investopedia 1). Fiscal policy is defined as the government spending and taxation that influences the economy. Central banks use monetary policy to change the money supply and either stimulate faster growth of an economy, or slow it down due to risks such as inflation. Both policies have their share of similarities and differences, and are vital in the United States economy. It is still questioned which policy ends up being more effective long and short term (Schmidt 1).
Fiscal policy and Keynesianism are commonly linked. The term arose from British economist John Maynard Keynes who had an influence on theories about the way an economy functions (Schmidt 1). His theories implied that by increasing aggregate demand, the government would stimulate the economy by creating jobs which would overall increase prosperity (Schmidt 1). The two types of fiscal policies that exist are expansionary and contractionary. Expansionary fiscal policy is when the government either spends more, cut taxes, or does both is plausible (Amadeo 2). The goal is to promote growth and make the consumer spend money by giving them more. Proponents of demand-side economics claim that spending outweighs tax cuts. Examples of effective additional spending are food stamps and unemployment benefits. Expansionary fiscal policy typically …show more content…
Like fiscal policy, monetary policy is used to speed up or slow down the economy. Unlike the national fiscal policy which is determined by the Executive and Legislative Branches, monetary policy is controlled by central banks such as the Federal Reserve. It is presumed that monetary policy causes the economy to grow at unusually high speeds by encouraging businesses and consumers to borrow and spend (Investopedia 1). If spending is restricted and savings are incentivized, the economy will have slower growth than