Economics 5

Help me in understanding the relationship between fiscal and monetary policy

Please see this prior post - does it help?

sorry, the explanation is complicated to understand. I did not get it. :frowning_face:

Fiscal policy = government tax and spend policies. Lower taxes and more government spending (i.e., subsidies to industry) generally stimulates the economy. This is “easy” fiscal policy. Higher taxes and higher short term interest rates are “tight” fiscal policy (tightening/reducing money supply).

Monetary policy = goverment printing more money or government adjusting short-term interest rates. More money printing and lower interest rates (this is “easy” monetary policy) mean more money is in the system, giving some potential for higher inflation. Less money printing and higher short term interest rates (this is “tight” monetary policy) means there is less immediate cash circulating around, and therefore has an anti-inflationary effect. Higher interest rates also affect business ability to borrow and finance their activities etc.

When they are combined together, you get the results in the page you circled. Please also see the core curriculum. If you’re struggling with economic concepts the core curriculum books have all the information there in more detail than a condensed summary created by some common prep providers.

Cheers - good luck - you got this👍

Have you tried Khan Academy? They probably have videos on all of this which go into a lot more detail than is practical for replies on a forum.

Plus . . . they have pictures.

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