Fiscal Policy and Monetary Policy

Why does the government use fiscal policy?

The government uses fiscal policy to control the economy, like boosting growth, controlling prices, and creating jobs, by changing how much it spends and collects in taxes.

How does monetary policy affect ordinary people?

Monetary policy affects regular folks by changing how much it costs to borrow money. Lower rates mean cheaper loans for things, like homes and cars, while higher rates make borrowing more expensive.

Can fiscal policy and monetary policy work together?

Yes, they can work together. For instance, if the government spends more to boost growth, the central bank might lower interest rates to help people and businesses borrow and spend more.

What are the risks of using expansionary fiscal policy?

Expansionary fiscal policy, which means more government spending and lower taxes, can lead to higher debt and prices going up too fast if not managed well.

How does monetary policy affect savings and investments?

Monetary policy changes how much people earn on their savings and what they pay for loans. Lower rates may make risky investments more attractive, while higher rates encourage saving instead of spending.

Difference between Fiscal Policy and Monetary Policy

Governments and banks have ways to manage money and keep the economy stable. Fiscal policy means how governments spend money and collect taxes to help the economy grow. Monetary policy, run by banks, is about controlling interest rates and how much money is available to achieve similar goals.