How do I know when to use monetary policy and fiscal policy?
TheOne78’s answer is correct as far as it goes. Since fiscal policy has near-term effects on money to be introduced into the national economy (spending) or taken out of it (taxation), the size of the effect is known. In contrast, monetary policy has a multiplier effect because it’s handled by influencing the availability of money to the credit markets, since the “value” of borrowing is being tweaked by the money payback (interest) offered on govt (Treasury) debt instruments, bonds and notes, or the adjustment of the Reserve Requirement, or the overnight lending rate for banks to borrow from the Fed (FRB). These last two elements are under the control of the central bank, which is only “influenced” by the desires of the government. The administration states what effect they want, and the board of the FRB decides which of its tools it will use to get that effect. Banks use this availability (or tightness) of funds to turn into loans, with the proportion of loans granted to amounts borrow
