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.