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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.