Fiscal and monetary policy

Definition

The two main tools governments use to manage the economy. Fiscal policy involves government decisions about taxing and spending, controlled by Congress and the president. Monetary policy involves managing the money supply and interest rates, controlled by the Federal Reserve.

Examples

  • Congress cutting taxes to stimulate consumer spending during a recession (fiscal policy)
  • The Federal Reserve lowering interest rates to encourage borrowing and investment (monetary policy)
  • Government stimulus checks during COVID-19 as an example of expansionary fiscal policy

Related Terms

Federal reserve Interest rates Government spending Taxation

Study This Concept

Practice fiscal and monetary policy with free review games in these units:

Economics Unit 8: Economic Indicators and Policy