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HUM 2107: Engineering Economics: Fiscal and Monetary Policy

This document discusses fiscal and monetary policy. [1] Fiscal policy involves how governments adjust spending and tax rates to influence the economy, while monetary policy involves how central banks manage money supply through interest rates and other tools. [2] The document outlines the tools and objectives of each policy, such as taxation, public expenditure, and controlling inflation or unemployment. [3] It also compares the key differences between fiscal and monetary policy, such as what entity administers each and whether political influence plays a role.

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Ashrafi Chisty
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75 views10 pages

HUM 2107: Engineering Economics: Fiscal and Monetary Policy

This document discusses fiscal and monetary policy. [1] Fiscal policy involves how governments adjust spending and tax rates to influence the economy, while monetary policy involves how central banks manage money supply through interest rates and other tools. [2] The document outlines the tools and objectives of each policy, such as taxation, public expenditure, and controlling inflation or unemployment. [3] It also compares the key differences between fiscal and monetary policy, such as what entity administers each and whether political influence plays a role.

Uploaded by

Ashrafi Chisty
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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HUM 2107: Engineering Economics

Chapter 04
Fiscal and Monetary Policy
What is Fiscal Policy?

Fiscal policy is the means by which a government adjusts


its spending levels and tax rates to monitor and influence a
nation's economy. It is the sister strategy to monetary
policy through which a central bank influences a nation's
money supply. These two policies are used in various
combinations to direct a country's economic goals. Here
we look at how fiscal policy works, how it must be
monitored and how its implementation may affect
different people in an economy.
Tools of Fiscal Policy

1. Taxation
2. Public Expenditure
3. Public Debt
4. Deficit Financing
5. Budget etc.
Types of Fiscal Policy
What is Monetary Policy?

Monetary policy is how central banks


manage liquidity to create economic
growth. Liquidity is how much there is in
the money supply.
Objectives of Monetary Policy

The primary objective of central banks is


to manage inflation. The second is to
reduce unemployment, but only after
they have controlled inflation.
Types of Monetary Policy
1. Central banks use contractionary monetary
policy to reduce inflation. They have many tools
to do this. The most common are raising
interest rates and selling securities through
open market operations.
2. They use expansionary monetary policy to
lower unemployment and avoid recession. They
lower interest rates, buy securities from
member banks and use other tools to increase
liquidity.
Tools of Monetary Policy
Difference Between
Fiscal and Monetary Policy
BASIS FOR FISCAL POLICY MONETARY POLICY
COMPARISON
Meaning The tool used by the government in which it The tool used by the central bank
uses its tax revenue and expenditure policies to regulate the money supply in
to affect the economy is known as Fiscal the economy is known as
Policy. Monetary Policy.

Administered by Ministry of Finance Central Bank

Nature The fiscal policy changes every year. The change in monetary policy
depends on the economic status
of the nation.

Related to Government Revenue & Expenditure Banks & Credit Control

Focuses on Economic Growth Economic Stability

Policy instruments Tax rates and government spending Interest rates and credit ratios

Political influence Yes No

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