5.1: Fiscal and Monetary Policy

Fiscal and monetary policy can be combined to either

Boost each other or couter each other

fiscal policy examples

• Government spending

• taxes

• social service payments

monetary policy examples

• Buy or sell bonds

• Reserve ration

• Discount rate

• Administered rates

expansionary fiscal policy

• Increase government spending

• Reduce tax burden

• Increase social service payments

contractionary fiscal policy

• Decrease government spending

• Increase taxes

• Less spending on social services

expansionary monetary policy

• Buy bonds

• Lower discount rates

• Lower reserve ratio

• Lower admistered rates

contractionary monetary policy

• Sell bonds

• raise discount rate

• raise reserve ratio

• raise admisistered rates