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Compare and contrast the monetary policy and fiscal policy by giving suitable examples for each.
Introduction:
The economies are controlled & regulated by the policies. Such policies can be majorly classified as Fiscal Policies & Monetary policies. Fiscal policies are related to the revenue of the government and its spending whereas monetary policies are related to the flow of money in the economy.
Body:
Differences between the Fiscal & Monetary policy:
Characteristic |
Fiscal policy |
Monetary policy |
| Formulated by | Ministry of Finance | Central Bank (Reserve Bank of India) |
| Announced by | Finance Minister | RBI Governor |
| Duration | Short term | Long term |
| Related to | Revenue & Expenditure of the government | Credit control |
| Key focus | Growth | Stability |
| Political influence | Present | Absent |
| Instruments | Tax rates, Spending of the government | Credit ratios, Interest rates |
| Types | 1) Expansionary policy
2) Contractionary policy |
1) Quantitative measures
2) Qualitative measures |
| Examples | 1) Minimizing/maximizing taxes
2) Expenses of the government for infrastructure, developments etc |
1) Repo rate
2) Reverse repo rate 3) Issue of bonds 4) Bank rate |
Conclusion:
Although they seems to be two different category of policies, when viewed collectively these policies are implemented to ensure the growth and the stability of the economy. For sustainable growth of the economy there should be stability in price. Hence, these policies are important to one another. Both the policies should be complementary to each other in order to maintain the growth of the economy.
