What is Monetary Policy:
Monetary policy is usually prepared by the central bank of a country, to monitor the flow of money.
Definition of Monetary Policy:
Monetary policy is mainly concerned with the process to control money supply/credit money, in order to meet certain social and economic objecting.
These point can also be consider for difference between Fiscal and Monetary Policy:
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Tools of Monetary Policy:
The following tools of monetary policy are as under.
1. Open market operation:
It is the buying and selling of bonds and securities in the open market, so due to open market operation money Supply is controlled by the state bank.
2. Bank Interest rate:
It is the rate at which control bank provide loan to the commercial banks. Thus by raising or lowering their rate money supply is controlled by the central bank of a country.
3. Credit rationing:
The control bank in order to control money supply provides credit for specific or selected purposes.
4. Bank reserve ratio:
All the commercial banks are legally bound to keep a portion of their deposit in cash form with the control bank, is called bank reserve ratio, by raising or lowering the ratio a central bank can controlled the supply of money.
5. Moral influence:
The control bank issue statistical review and information, in order and to provide a particular guide line to the commercial banks.
Objective of Monetary Policy:
The following objective of monetary policy are as under:
- To bring stability in the general price level.
- To control the supply of money / credit money in the country.
- To promote employment opportunities in the country.
- To control inflationary or deflationary situation in the country.
Fiscal Policy:
Fiscal policy is prepared by the federal government, to analyze and shaping the revenue and expenses of government.
Definition Fiscal Policy:
Fiscal policy is mainly concerned with the process of shaping government taxation and government spending so as to achieve certain objectives.
Tools of Fiscal Policy:
The following tools of fiscal policy as under
1. Taxation:
It is the one of the main source of revenue for the government. There are different kinds of tax as under
a. Direct tax:
It is directly paid by the tax payer like income tax.
b. Indirect tax:
It is not directly paid by the tax payer like general sale tax (GST).
2. Expenditure:
Government incurred a number of expenditure such as expenditure on keeping general administration, defenses, development expenditure etc.
Objective of Fiscal Policy:
Following are the main objective of fiscal policy.
- To increase employment opportunities.
- To remove regional disparity.
- To eliminate or reduce the gap between rich and poor.
- To promote employment opportunities.
- To increase investment.
- To remove regional disparity.
- To accelerate economic growth.
- To promote social welfare.
- To make possible maximum
Exploitation the available resource by increasing expenditure in the less development areas.
