MONETARY AND FISCAL POLICY

Monetary Policy

The setting of the money supply by policy makers in the central bank

Monetary Policy

It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity

Monetary Policy

An increase in the money supply reduces the interest rate, increase investment spending and aggregate demand this increase equilibrium output

Money

Set of assets in an economy that people regularly use to buy goods & services from other people

Medium of exchange

An item that buyers give to sellers when they want to purchase goods & services

Unit of account

The yardstick people use to post prices and record debts. Money provides the terms in which prices are quoted and debts are recorded

Store of value

An item that people can use to transfer purchasing power from the present to the future

Commodity money

Takes form of commodity with intrinsic value but risks large price fluctuations based on changing commodity prices
gold and silver coins

Fiat money

Money without intrinsic value that is used as money because of government decree

Fiscal Policy

The policy of the government with regard to the level of government purchases, the level of transfers, and the tax structure

Fiscal Policy

Can be used to stabilize economy by manipulating the levels and allocations of taxes and government expenditures. Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals.

Direct tax

Income tax

Indirect tax

Excise tax

Tax Burden

Ratio of the tax to a taxpayer’s income
tax:payer

Progressive Tax

If the assessment on the rich is greater than those on the poor
One where the average tax burden increases with income.

Progressive Tax

High-income families pay a disproportionate share of the tax burden, while low- and middle-income taxpayers shoulder a relatively small tax burden.

Proportional tax

All pay the same percentage of their income taxes
Levies the same percentage tax to everyone regardless of income

Regressive tax

If the taxpayer receiving a lower income shoulders the heavier tax burden. Taxes are those that are paid regardless of income, such as sales taxes, sin taxes, and property taxes.