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What is the difference between fiscal and monetary?

Posted on by Kieran McGovern

When economists talk about fiscal policy they are referring to raising and spending taxes.

Monetary policy is what central banks do to control the amount of money in an economy. Normally they do this either raising/lowering interest rates. Raising interest rates restricts the amount of money circulating and should reduce inflation. Lowering interest rates encourages expenditure as there is more money available.

But as everyone know these are not 'normal' economic times. Interest rates in the advanced western economies have fallen to close to zero - but the recovery remains this. To counter this some central banks have introduced something called quantative easing.  Put simply means pushing more money directly into the economy via the banks - see here for more details.