In this article, we’re exploring fiscal vs monetary policy, explaining how they impact economic activity, interest rates, and ultimately the countries where you choose to bank.
This article is part of our free US banking series, featuring opening US bank accounts for non-residents and other difficult profiles, which you can access with this link.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Fiscal vs Monetary Policy
- What Is the Difference Between Fiscal Policy and Monetary Policy?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
Fiscal vs Monetary Policy
Fiscal policy and monetary policy are two forms of economic policy. However, there are key differences. Fiscal policy is implemented by the government, involving taxation and government spending while monetary policy is implemented by the central bank, involving interest rates, money supply, and inflation control.
Both fiscal and monetary policy aims to deliver economic stability and economic growth. Governments and central banks achieve this in different ways. However, economic volatility has resulted in fiscal and monetary policy coordination in most countries.
What Is the Difference Between Fiscal Policy and Monetary Policy?
The main difference between fiscal policy and monetary policy is that fiscal policy is the purview of the government of a country while monetary policy is the purview of the central bank of a country. Additionally, fiscal policy is generally focused on long-term economic change while monetary policy is focused on having a short-term and immediate impact.
Fiscal policy is the purview of a nation’s government, used to impact the long-term economic trends of a country. The fiscal policy primarily involves government decisions related to taxation and government spending.
Monetary policies are the purview of a nation’s central bank (when they have one), used to impact short-term money supply and economic activity. The monetary policy primarily involves central bank decisions related to interest rates, money supply, and credit conditions.
Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into fiscal vs monetary policy. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Is One Major Difference Between Fiscal Policy and Monetary Policy?
One major difference between fiscal policy and monetary policy is the responsible parties making the decisions and implementing the policy. In the case of fiscal policy, the government is the party responsible for making decisions and implementation. On the other hand, monetary policy is determined and implemented by the central bank. In most cases, the government and central bank are separate entities, theoretically operating separately from one another.
Is Fiscal or Monetary More Effective?
Fiscal and monetary policies typically impact the economy on different time horizons, so their effectiveness is measured differently. For example, fiscal policy is generally used to impact long-term trends while monetary policy is used for short-term impact on the economy. In other words, both fiscal or monetary policy can be effective, but in different ways and over different time horizons.
What Is an Example of a Monetary Policy?
A common example of monetary policy is the adjustment of interest rates by central banks. Central banks make these adjustments to impact consumer spending behavior, lowering to stimulate spending and increasing to slow spending. They can do this directly by increasing and decreasing the central bank rate and also by buying and selling government securities on the open market.
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