How are monetary policy and fiscal policy different?

Fsp Invest, 10 Dec. 2013

Tags: monetary policy/fiscal policy, economy, difference between monetary and fiscal policy, how government controls money supply, how government stimulates demand

If you’re interested in becoming a serious investor, it’s important to know what’s going on in the economy.
Because economic trends in your country will affect your wealth, be it in a bank account or in the stock market…
And a healthy economy is good news for your investments.
The government tries to keep the economy healthy through a combination of fiscal policy and monetary policy.
But what does that mean and what’s the difference between fiscal policy and monetary policy?
We’ve explained it for you.

How government regulates the money supply
‘Monetary policy’ is a term for the methods government uses to control the supply of money in circulation. 
They do this by changing interest rates and the reserve requirements of banks. The ‘reserve requirement’ is the minimum amount of a customer’s deposit that a bank must hold in reserve. 
So for example, if there are high rates of inflation, the government will try to limit the money supply by raising interest rates and reserve.  Requirements. 
And this will limit the amount of money in circulation! 
How government stimulates demand in the economy
‘Fiscal policy’ is a term for the way government tries to stimulate demand. 
If demand is low in the economy, the government can step in and rev up its spending to stimulate demand. 
Or, it can lower taxes so people and companies have more disposable income. And that will encourage them to spend more money. 
These are just some of the ways government tries to control what happens in the economy. 
So if you want to see if the economy is healthy and your investments are safe, keep an eye on what’s happening with monetary policy and fiscal policy.

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