Both fiscal policy and monetary policy impact our economy, and have similar goals. They can be used to try to keep inflation at a low rate. They also try to help achieve full employment and maintain positive economic growth. The implementation of both fiscal policy and monetary policy is meant to reduce cyclical fluctuations in the economy.
There are also some differences between these two concepts. Fiscal policy involves making changes in the taxation and the spending policies of the government. This could include increasing or decreasing government spending or increasing or lower taxes. Increasing government spending while lowering taxes would likely create a budget deficit while cutting government spending and raising taxes could lead to a budget surplus. In the United States, these actions are usually determined by the wishes of the President and the actions of Congress.
Monetary policy involves controlling the money supply by either raising or lowering interest rates. If interest rates rise, it will slow investment and expansion in the economy since it would cost more to borrow money. Demand for products should drop as less money should be available in the economy. Lowering interest rates would lead to more investment in the economy and should lead to economic expansion, since it would cost less to borrow money. Demand for products should increase as more money should be available in the economy. In the United States, the Federal Reserve Board controls the interest rates.
There are both similarities and differences between fiscal policy and monetary policy.