What is the difference between monetary policy and fiscal policy?

The national economies are often volatile and unpredictable. Therefore, economies must occasionally be stimulated or limited through monetary policy and fiscal policy. The monetary policy is essentially introduced and directed by the central bank, while the fiscal policy is introduced and managed by the national government. To be completely effective, these policies are usually performed in mutual agreement. The Fed currency policy instructions are determined and sometimes initiated by the Federal Committee on the Open Market (FOMC). All monetary policy is carried out between Fed and various commercial banks across the country. From this bank interaction, the lending of commercial banks and, for example, lend interest rates and rates of deposits that affect consumer expenditure habits and thus the economy as a whole.

Economic stimulus methods or occasionally slowed through monetary policy are four times. (1) The Fed may increase or reduce the ratio of the reserve, the amount of money banks must be deposited in the federal reserve. (2) Interest rates of federal financing may be increased or reduced, so short -term loans rates between commercial banks cheaper or more expensive, encouraging or discouraging loans between banks. (3) The Fed may also increase or reduce interest rates at which commercial banks can borrow from a federal reserve bank. (4) In the end, the Fed may either sell or buy government bonds in an effort to increase or reduce government cash reserves.

On the other hand, fiscal policy

is introduced and launched by the national government in the form of tax cuts. The foundations of government fiscal policy also include increased expenditures on APRO government programs in advance automatic fiscal measures such as unemployment or social security. The results of the decision on fiscal policy on income and therefore in the economy are more consumer than the results of various monetary fieldstik.

In all cases of economic changes made through both monetary and fiscal policy, timing in determining results can be essential. Double the delay between the start of change and the actual results observed in the economy is shorter than manipulating monetary policy through fiscal policy changes. For example, tax reduction will affect consumer expenditures, and therefore the economy as a whole as a whole will be much faster than the amount of interest that the local bank must pay for a loan from a Fed or another Komerční banka.