Fiscal Policy vs Monetary Policy

Differences Between Fiscal Policy vs Monetary Policy

These phrases “fiscal policy” and “monetary policy” are often used interchangeably, but they are quite different.

• Fiscal policy depicts the picture of how the government spends money and collects revenue and the whole thing about fiscal policy are to ensure that the spending and revenue collections happen appropriately.
• On the other hand, monetary policy talks about the movement and supply of money. It is handled by the central bank of the country by changing factors like interest rates, cash reserve ratio etc.

In this article, we will do a comparative analysis of fiscal policy and monetary policy and look at the similarities and differences.

Fiscal Policy vs Monetary Policy Infographics

There are many differences between Fiscal policy and monetary policy. We will just look at the top 8 differences.

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Fiscal Policy and Monetary Policy Differences

As you can see that there are many differences between fiscal policy vs monetary policy; the key ones are here –

• The fiscal policy ensures that the economy develops and grows through the government’s revenue collections and government’s appropriate expenditure. On the other hand, monetary policy ensures that there is liquidity in the economy and the economy remains stable throughout.
• Fiscal policy is controlled by the ministry of finance of the country. Monetary policy, on the other hand, is controlled by the central bank of the country.
• The fiscal policy ensures the overall well-being of the economy. Monetary policy is the subset of fiscal policy.
• Fiscal policy is formed every year after reviewing the results of the previous year. Monetary policy is formed as per the economic conditions of the country.
• Both fiscal policy and monetary policy can be used as expansionary and contractionary policies in different conditions.
• Fiscal policy has reasonable political influence. Monetary policy doesn’t have political influence.

Fiscal Policy vs Monetary Policy  – Comparative Table

Basis for Comparison between Fiscal Policy vs Monetary Policy	Fiscal Policy	Monetary Policy
1.    Meaning	Fiscal policy helps control the spending and revenue collections of government to influence the economy at large.	Monetary policy is the tool for the central bank through which the movement and the flow of money in the economy is controlled.
2.    Controlled by	Ministry of Finance of the country.	Central bank of the country.
3.    Complexity	Comparatively less complex.	Comparatively more complex.
4.    Nature	Fiscal policy changes every year after reviewing the previous year’s results.	Monetary policy doesn’t change as per a particular period; rather it changes whenever the economy needs the change.
5.    Focus	Focus of a fiscal policy is to ensure the development and growth of an economy.	Focus of a monetary policy is to maintain the economic stability of a country.
6.    Works on	Fiscal policy works on government’s spending and government’s collections.	Monetary policy works on the flow of money in the economy and the credit control.
7.    Does it have any political influence?	Yes.	No.
8.    Tools used in the policy	Tax rates, Demonetisation etc.	Cash reserve ratios, repo rate, interest rate etc.

Conclusion

Fiscal policy and monetary policy, both are very significant for economic growth and development of a country. But Fiscal policy and monetary policy have different applications and merits and demerits. The fiscal policy serves a country through its collections of money and right expenditure. If the fiscal policy fails, it will also affect the monetary policy of the company. Monetary policy, on the other hand, doesn’t talk about growth or development; rather its primary purpose is to ensure enough liquidity and then curb inflation rate and reduce unemployment. Both Fiscal policy and monetary policy have their objectives and to succeed as a growing economy, both of Fiscal policy and monetary policy should be formed appropriately.

Recommended Article

This has a been a guide to the top differences between Fiscal policy vs monetary policy. Here we also discuss the differences between the two with examples, infographics,  and comparison table. You may also have a look at the following articles to learn more –

• Expenditure vs Expense
• Differences Between Repo Rate and Reserve Repo Rate
• What is Monetary Policy?
• What is Macroeconomics?
• Microeconomics Beginner’s Guide
• Macroeconomics vs Microeconomics
• What is Quantitative Easing?