We hear a lot about Monetary Policy and Fiscal Policy everyday, but so many of us don’t know the differences between Monetary Policy and Fiscal Policy. Today, we try to understand the differences that exists between these two important concepts. Firstly, Macro Economic policies are of an utmost importance for every country to record growth of the economy. There are many macro-economic policies, out of them Monetary Policy and Fiscal Policy are very important and they are followed by the government to achieve the equilibrium between aggregate demand and aggregate supply.
MONETARY POLICY
Monetary policy is an important economic tool which is used to attain many macro-economic goals. Monetary policy regulates the supply of money and availability of credit in the economy. It takes care of both the lending and borrowing rates of interest of commercial banks. It aims to maintain price stability, full employment, and economic growth. Reserve Bank of India (RBI) is responsible for formulating and implementing monetary policy of India.
FISCAL POLICY
Fiscal policy is defined as the conscious attempt of the government to achieve certain macro-economic goals of policy by changing the volume and pattern of its revenue and expenditures and the balance between them.It is a budgetary policy. Fiscal policy is the use of government taxes and spending to alter macroeconomic outcomes of the country.
COMPARISON TABLE
Now let us see the differences between monetary policy and fiscal policy
| MONETARY POLICY | FISCAL POLICY |
|---|---|
| The main objective of the monetary policy is to achieve Price stability. | The main aim of fiscal policy is to maintain economic stability in the country and to bring Price stability. |
| Aim | |
| Monetary policy aims to attain Exchange rate stability. | Fiscal policy strives to promote export and introduce import substitution. |
| Focused On | |
| Monetary policy focuses on avoiding the negative impacts of the business cycle. | Fiscal policy concentrates on achieving balanced regional growth. |
| Employment | |
| Monetary policy tries to achieve full employment position. | Fiscal policy aims at social justice and full employment. |
| Depends on | |
| Success and failure of monetary measures depends on the banking system of the country. | Success of fiscal measures depends on the accurate predictions of various economic activities. |
| Importance | |
| The monetary measures are not very effective in overcoming depression. | In anti-depression fiscal policy, the expansion of public spending and reduction on taxes are the important elements. |
| Restrictions | |
| Monetary policy operates in a broad front, It has Institutional restrictions | The compensatory fiscal policies of the government may discourage private investment, since the private entrepreneurs have to face a competition from public enterprises |
