Question

What is the difference between fiscal policy and monetary policy?

Answer 1

Fiscal Policy	Monetary Policy
Managed by the government.	Managed by the central bank.
Affects the economy by changing tax rates and government spending.	Influences the economy by controlling the money supply and interest rates.
Impacts are often direct and immediate.	Impacts may be indirect and take longer to materialize.
Used to influence the aggregate demand in an economy.	Used to control inflation and stabilize the financial system.
Can lead to a budget deficit if not managed correctly.	Does not directly result in a budget deficit.
Can be used for wealth redistribution.	Does not usually have wealth redistribution as a goal.
Fiscal policy can be politically influenced.	Central banks often operate independently of politics.
Can lead to crowding out of private investment.	Can stimulate or discourage private investment through interest rates.
Can lead to inflation if too much money is pumped into the economy.	Designed to control inflation.
Long-term policy, changes are implemented over the fiscal year.	Can be adjusted more frequently, providing more flexibility.