Fiscal Policy: Monetary Policy For The United States

Monetary policy is the “actions of central banks, in the United States culminating in the Federal Reserve, designed primarily to maximize employment and moderate inflation” (483. The central bank, or main enforcer, of monetary policy for the United States would be the Federal Reserve. In other words, this means that the Federal Reserve, mainly, controls interest rates and manipulates the national money supply. This would allow for some control of employment rates and inflation rates, especially during a period of financial crisis.

Fiscal policy is the “taxing and spending policies carried out by government, generally in an effort to affect national economic development” (483). In other words, the government works to influence their nation’s

economy by altering their spending amounts and taxes. As a result, the two main parts of fiscal policy are spending and taxes. Fiscal policy can be used two different ways. It can be used to activate the economy by spending more money and lowering taxes in order to provide more money for the American public. It can also be used to slow down the economy by raising taxes and decreasing spending in order to stall inflation. Overall, the main difference between monetary policy and fiscal policy is that one has control of the money supply through a central bank, while the other is about the government controlling their taxing and spending.