Question

What exactly is fiscal policy? How does that differ or relate to monetary policy and the financial system?

Answer 1

Fiscal policy are decisions taken by the central government to influence the economy. Under fiscal policy the government can increase or decrease taxes or increase or decrease their spending. This can be used to target a particular inflation or to promote growth or to curb higher inflation.

This differs from monetary policy and financial system in following ways
1. Fiscal policy is decided by the government whereas monetary policy are decided by Fed .
2. Fiscal policy is focused on tax rates and government expenditure to expand or contract the economy whereas monetary policy and financial system are focused on interest rate, regulations and open market operation to increase or decrease liquidity in system.

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