Fiscal and Monetary policy

what is fiscal policy

government policy that attempts to influence the direction of the economy through changes in government spending or tax

what is monetary policy

the use of money supply and/or the interest rate to influence the level of economic activity, inflation, the balance of payments and exchange rates.

features of interest rates

• the cost of borrowing money and return for lending

• measure the opportunity cost of spending rather than saving and receiving interest

features of monetary policy

• controlling the money supply and rate of interest in order to influence the level of spending and demand in the economy

• decisions are made by the monetary policy committee of the bank of England