Difference between Monetary policy and Fiscal policy?

Monetary policy:

Monetary policy is usually prepared by the control bank.

Definition of monetary policy:

Monetary policy is mainly concerned with the process to control money supply/credit money, in order to meet certain social and economic objecting.

Tools of monetary policy:

The tools of monetary policy is as under.

 i.                  open market operation:

It is the buying and selling of bonds and securities in the open market, so due to open market operation money Supply is controlled by the state bank.

 i.                  Bank rate:

It is the rate at which control bank provide loan to the commercial banks. Thus by raising or lowering their rate money supply is controlled by the state bank.

ii.                  Bank reserve ratio:

All the commercial banks are legally bound to keep a portion of their deposit in cash form with the control bank, is called bank reserve ratio, by raising or lowering the ratio a central bank can controlled the supply of money.

iii.                  Credit rationing:

The control bank in order to control money supply provides credit for specific or selected purposes.

iv.                  Moral persuation:

The control bank issue statistical review and information, in order and t provide a particular guide line to the commercial banks.

Objective of monetary policy:

The objective of monetary policy is as under:

    I.            To control the supply of money/credit money in the country.

   II.            To bring stability in the general price level.

   III.           To control inflationary or deflationary situation in the country.

   IV.           To promote employment opportunities in the country.

Fiscal policy:

Fiscal policy is prepared by the federal government.

Definition fiscal policy:

Fiscal policy is mainly concerned with the process of shaping government taxation and government spending so as to achieve certain objectives.

Tools of fiscal policy

The tools of fiscal policy as under;

 i.                  Taxation:

It one of the main source of revenue for the government. There are different kinds of tax as under:

a.              Direct tax:

It is directly paid by the tax payer like income tax.

b.              Indirect tax:

It is not directly paid by the tax payer like sale tax.

ii.                  Expenditure:

Government incurred a number of expenditure such as expenditure on keeping general administration, defences, development expenditure etc.

Objective of fiscal policy:

Following are the main objective of fiscal policy.

             I.            To remove regional disparity.

            II.            To eliminate or reduce the gap between   nice and poor.

           III.            To promote employment opportunities.

           IV.            To increase investment.

            V.            To promote social welfare.

           VI.            To increase employment opportunities.

          VII.            To accelerate economic growth

         VIII.            To make possible maximum
         IX.            Exploitation the available resource by increasing expenditure in the less development areas.  

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Author : commercealls

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