Difference between fiscal and monetary policy
Answers
Fiscal Policy
Government's program with purchase of goods and services and spending on transfer payments and amount and type of taxes.
Past year U.S. budget has shifted from surplus to deficit as result of changes in fiscal policy.
Combination of tax reductions, increased spending and 2001 recession caused a shift.
Tax cuts and increased spending are part of government's fiscal policy that is framed to increase short-run economic growth.
Monetary Policy
Monetary policy's effect on economy is explained in Federal Reserve System's Purposes and Functions publication.
Federal Reserve Act lays out goals of monetary policy.
It specifies that conducting monetary policy Federal Reserve System and Federal Open Market Committee should seek "to promote effectively goals of maximum employment, stable prices and little long-term rate of interest."
Using tools of monetary policy Federal Reserve can affect money amount and credit interest rates.
It influences employment, output and normal level of prices.