Fiscal & Monetary Policy

What is Fiscal Policy?

The use of government spending, taxation and borrowing to achieve relevant economic objectives

What is a Monetary Policy?

The use of interest rates and changes to the money supply to achieve relevant economic objectives

What are the main taxes for Fiscal Policy?

• Income Tax

• Corporation Tax

• VAT

What are the main taxes for Fiscal Policy spent on?

• Health

• Education

• Social Security

What happens if the government spends more on taxes?

• The Government needs to borrow to cover the difference.

• This gap is known as the budget deficit or 'public sector net borrowing'.

Who manages monetary policy?

• Since 1997 monetary policy has been controlled by the Bank of England

• The main changes are in interest rates and the money supply

• The main objective of monetary policy is to keep inflation low and stable

• However, the Bank also tries to support the stability of economic growth

What is macroeconomics for Fiscal Policy?

Policy decided by the government of a country regarding the levels and methods of taxation and the overall amount of government expenditure: Remember: Government spending and investment represent a large % of economic activity

What is macroeconomics for Monetary?

The control of the money supply in an economy and the rate of interest charged for borrowing money. In Highly Developed economies the rate of interest is decided by a central bank which is independent of the government of the day. EG Bank of England, US Federal Reserve Bank, EU Central Bank

What is the overall macroeconomics?

The overall aim and objectives of fiscal and monetary policy will vary depending on the priorities of the government in power, particularly with respect to the treatment of businesses