What are fiscal policy and monetary policy?
In free market economies, found in most of the developed world, governments have two types of economic policy to control and create demand for goods and services – fiscal policy and monetary policy. The aim of the government is to achieve and control the economic objectives of price stability, full employment and economic growth. By increasing spending and/or reducing taxes, a government can try to boost an economy. Conversely, governments can reduce spending and increase taxes in order to attempt to control an economy that is expanding too rapidly. Fiscal policy is the use of government spending and revenue collection (taxation) to influence the economy. In contrast, monetary policy is the process by which the government or central bank controls the supply, availability and cost (i.e. interest rate) of money. Monetary policy is referred to as being expansionary or contractionary, depending on whether the supply of money in the economy is increasing or decreasing. Controlling the suppl
