What is the difference between the terms monetary and fiscal?
I often use Economists and People in the Government use these two terms times and again: “monetary and fiscal.”
To me it sounds as same and most of the time they are used side-by-side in the discussion.
Explain to me what is the difference between the terms monetary and fiscal?
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- Fiscal policy is handled by the government. It decides how much money to collect as taxes and how to spend it (Capex). These spending can be on roads, schools, hospitals, or defense. When the government spends more or cuts taxes, people usually have more money to spend.
- Monetary policy is handled by the RBI. It controls interest rates and money supply. If the RBI lowers interest rates, loans become cheaper, so people and businesses borrow and spend more.
Both the government and the RBI try to keep the economy stable and growing, but they use different tools.
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