Difference Between Monetary And Fiscal Policy

923 WordsMay 6, 20164 Pages
1. Explain the difference between monetary and fiscal policy. Answer: Monetary Policy: It helps to limit the flow of money in order to reduce problems of unemployment, inflation and to stabilize business cycle. Interest rates are controlled to promote overall economic growth. But, the monetary policy in United States of America is handled by the Federal Reserve System (FED). FED is the central banking system. Fiscal Policy: Similar to Monetary policy, Fiscal policy stabilize business cycle, reduce unemployment and inflation, and promote economic growth. But, fiscal policy is undertaken by state and local government to stabilize local economies. This is done by Congress and the President actions. 2. List and briefly explain the 3 main goals of monetary policy (DO NOT copy and paste materials from the internet, use your own words). Answer: The generalized goal of monetary policy is to maintain economy at the best. The three important goals of monetary policy are as under: 1. Economic Growth: Increase in production capacity over time leads to economic growth. Production capacity could be increased by increasing the quantity and quality of resources as per the requirement. This results in more goods and services for consumption. 2. Full Employment: Full employment is achieved when production of goods and service is triggered by all available resources such as labor. These resources are willing and able to involve in production. This goal is achieved if the unemployment
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