What is the Difference Between Monetary Policy and Fiscal Policy?
Fiscal policy describes two governmental actions by the government. The first is taxation. By levying taxes the government receives revenue from the populace. Taxes come in many varieties and serve different specific purposes, but the key concept is that taxation is a transfer of assets from the people to the government. The second action is government spending. This may take the form of wages to government employees, social security benefits, smooth roads, or fancy weapons. When the government spends, it transfers assets from itself to the public (although in the case of weaponry, it is not always so obvious that the population holds the assets). Since taxation and government spending represent reversed asset flows, we can think of them as opposite policies. Simply stated, monetary policy is carried out by the Fed to change the money supply. When the Fed increases the money supply, the policy is called expansionary. When the Fed decreases the money supply, the policy is called contrac
