Difference between Fiscal Policy and Monetary Policy

Key Difference: Fiscal policies are the policies of the federal government related to the taxes, spending and debt management. They aim to promote the nation’s macroeconomic goals. Monetary policies are the policies of the government or central banks to control the money supply. These policies are used to establish a balance in the national income and growth in the economy.

Fiscal policy is an umbrella term used to refer to the policies of the federal government that are related to tax and mechanism of spending. These policies influence the aggregate demand in the economy.

Monetary policies are generally carried out by the central bank or the monetary authorities. These policies influence the direction of an economy by controlling the money supply.

Some of the differences are listed below:-

	Fiscal Policies	Monetary Policies
Definition	Fiscal policies are the policies of federal government related to the taxes, spending and debt management. They aim to promote the nation’s macroeconomic goals.	Monetary policies are the policies of government or central banks to control the money supply. These policies are used to establish a balance in the national income and growth in the economy.
Carried out by	Government	Generally by Central Bank/ Monetary Authority
Actions	Changing level of government spending Changing levels of Taxation	Setting base interest rates Influencing the supply of money
Time to implement	Comparatively more	Comparatively less
During Recession times	Generally more effective	Generally less effective
Impact on the composition of output	Affecting all sectors	Can be used to affect certain groups
Instruments	1. Reduction of Govt. Expenditure 2. Increase in Taxation 3. Imposition of new Taxes 4. Wage Control 5. Rationing 6. Public Debt 7. Increase in savings 8. Maintaining Surplus Budget	1. Bank Rate of Interest 2. Cash Reserve Ratio 3. Statutory Liquidity Ratio 4. Open market Operations 5. Margin Requirements 6. Deficit Financing 7. Issue of New Currency 8. Credit Control
Effective for	Economic growth	Stability
Flexibility	Comparatively less (Political reasons)	Comparatively more