ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Monetary policy refers to central bank activities that are directed toward influencing the quantity of money and credit in an economy. By contrast, fiscal policy refers to the government’s decisions about taxation and spending. Both monetary and fiscal policies are used to regulate economic activity over time.

Detailed explanation-2: -Monetary policies are formed and managed by the central banks of a country and such a policy is concerned with the management of money supply and interest rates in an economy. Fiscal policy is related to the way a government is managing the aspects of spending and taxation.

Detailed explanation-3: -Fiscal policy is a means to use government spending and taxation to influence the economic situation. It is different from the monetary policy that is under the control of the central bank in that country. Together these two policies can help a country to achieve its economic goals.

Detailed explanation-4: -Why is monetary policy easier to conduct than fiscal policy? The basic objectives of the monetary policy are to achieve full employment, price stability, and economic growth. The strength of policy is that it can control the money supply, and it is easy to impellent as it does not have an implementation gap.

Detailed explanation-5: -(vii) Monetary and fiscal policies are complementary to each other; when one fails, the other succeeds. Monetary policy is more effective during inflation, while fiscal policy is more effective during deflation. (viii) A judicious combination of monetary and fiscal policies is required to meet economic exigencies.