Essay about Fiscal and Monetary Policy

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The difference between fiscal and monetary policy lies within the different tools wield, and aspects of the economy they influence. Fiscal policy generally deals with different sorts of taxes to manage earnings and spending in the population, and how the government benefits from these interactions. Monetary policy, on the other hand, affects the base value and amount of money in circulation directly, as opposed to simply leveling off amounts from the population to put into federal spending. There are, primarily, two tools utilizing taxes that are used in fiscal policy to influence the economy. The first of these- Revenue tools- are the taxes collected by the government, both directly and indirectly. We experience direct taxes in the…show more content…
The tools of monetary policy have to do with the currency in circulation and its value. One of the primary tools implemented by the government is open market purchases and sales- buying and selling different shares to increase or decrease the amount of money in the monetary base. These are usually permanent changes. In case there is a need for a temporary devaluation or increase in monetary amount and value, the government implements repos- the temporary buying or selling of government securities with the intention of the original owner buying back the share. When there is a dearth of money in local banks, a central bank offers them a loan (the discount rate)- another monetary policy tool- which bails them out. Fiscal and Monetary policy both have their advantages and disadvantages. According to James Tobin, two of the main goals of monetary policy is to ensure the stability of the value of money (ideally, ensuring the rate of inflation is as close to zero as possible) and to provide jobs to the entirety of the population. However, Tobin claims these often conflict. “Full employment means that everyone… who is productive enough to be worth the prevailing real wage and wants a job at that wage is employed. In these circumstances more

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