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Fiscal and monetary policies in United States

A policy is a desirable way of conductance as officially expected by a government or authoritative body of a certain place in order to guide the decisions made for achievement of reasonable results. Policies can either be objective or subjective a factor that depends on the field it is applied and who has control over it. There are policies that are concerned with the economy and those are monetary policy and fiscal policy (Drobyshevsky 2018). Fiscal policy is the use of revenue collected by the government and its expenditure to influence the economy of a country. Fiscal policy is mostly used to stabilize the economy of a place due to the cycle of business taking place. Monetary is a process whereby the body that controls the currency of the country for instance the central bank control the cost of short term borrowing mostly aimed at interest rates or inflation rates. The two policies are tools mostly used to influence the economic activities of a nation.

To gear up or check on the economy of a state monetary economy has been used to check on their growth. Monetary policy as always been an incentive to people and even businesses on how the borrow money and spend (Scharpf 2018). Monetary policy take control of issues related to an overheating economy by acting as a stop to inflation and an incentive to saving. Money is pulled out or injected in the economy by a monetary policy known as open market operations. By creating reserve requirement, the Federal Reserve influences the amount of money made by financial institutions.

Fiscal policy is a goal aimed at by the government on their standard of spending and all things involved in the spending or the two to the economy. Fiscal policies are largely influenced by government spending policies and tax policies of the government. The government can increase it’s the amount of money it spends if it beliefs in the business activities in its economy are not enough an act known as stimulus expenditure. If the tax received is not enough to take care of the spending the government borrows. The government can slow down the business activities by increasing the tax or speed up business by lowering the taxes in pursuit to increase economic growth. Before money is spent or taxes increase, a choice is always done to find the most suitable place to do the two be it a specific industry or specific goods. Fiscal policies are in most cases subjective and raise debates between observers and economists.

Both monetary and fiscal policies affect the economy of the United States differently and are effective in different sectors. For expansion and making the real economy better fiscal policies will be more effective of the two. On matters dealing with the expansion and financial economy of a country monetary policy is the best to apply. There is always a positive effect impacted by fiscal policies as it leads to increase in income earned and the employment opportunities available. It also leads to increased revenues which benefit companies. Fiscal economy can however lead to inflation if the economy is almost full (, John H 2018). The margins of some companies may be eaten away if the industries are competitive and unable to pass costs to customers. The market may become too disorderly and create asset bubbles due to the effect of fiscal policy. Monetary prevents deflation and economic collapse hence has no big impact on the real economy of the United States. Monetary policy is not able to make any expansion and contraction of money supply which will in turn influence growth and inflation. Monetary policies in United States has brought about psychological benefits on economic instances.

Fiscal and monetary policies have both influenced the economy of The United States in objective and subjective ways respectively.


Drobyshevsky, Sergey, et al. “Fiscal and Monetary Policy.” Russia. Palgrave Macmillan, London, 2018. 169-181.

Cochrane, John H. “Stepping on a rake: The fiscal theory of monetary policy.” European Economic Review 101 (2018): 354-375.

Scharpf, Fritz W. Games real actors play: Actor-centered institutionalism in policy research. Routledge, 2018.



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