101 Concepts for the Level I Exam
Concept 29: Monetary v/s Fiscal Policy
Both policies are used to maintain stable prices and promote positive economic growth.
Monetary policy: Refers to central bank actions aimed at influencing the money supply and credit in an economy through interest rates, repo rates, open market operations and other methods.
- Expansionary or accommodative or easy monetary policy: Increases money supply and credit in the economy.
- Contractionary or restrictive or tight monetary policy: Decreases money supply and credit in the economy.
Fiscal policy: Refers to government actions aimed at influencing economic activity through taxation and spending.
- Balanced budget: Tax revenues equal government spending.
- Budget surplus: Tax revenues exceed government spending.
- Budget deficit: Tax revenues are less than government spending.