The paper "Difference between Fiscal Policy and Monetary Policy and Their Relationship to the Federal Budget" is a great example of a finance and accounting assignment. Financial policymakers argue that there are two unique forms of tools used to manipulate a country’ s economy: monetary and fiscal. Monetary policy refers to the actions taken by central banks to accomplish macro-economic policy objectives such as full employment, price stability and steady economic growth. The congress in America created price stability and maximum employment as macro-economic objective aimed at boosting the Federal Reserve which is also known as a dual mandate.
Congress concluded that the operations of the monetary policy should not be politically influenced unless the objectives are overarching. This resulted in a unique decision where the Federal Reserve was made an independent agency of the central government. A fiscal policy defines the spending and tax policies of the central government. The administration and the congress are assigned the task of determining decisions of the fiscal policy (Charles, 2012). The Federal Reserve does not influence the fiscal policy in any way. The executive and legislative branches of the federal government govern the fiscal policy.
In America for instance the congress and the office of the treasury secretary pass laws. Policymakers usually use fiscal implements to manipulate demand in the American economy. For example: when handling taxes, the government may reduce taxes if the demand is low thus automatically increasing the amount of disposable income, therefore, stimulating demand. When handling spending especially when inflation is high the government can seclude itself from battling for resources in the open market of both services and goods.
This is a retrenchment policy that can reduce prices. Conversely, in the case of aggregate demand or recession where there is an increase in government expenditure in infrastructural schemes, this may result in more employment opportunities and higher demand (Lawrence, 2010). The fiscal policy, therefore, plays a major role in matters of the federal budget due to the effective duties done to cut expenditures or increase taxes to balance public debt levels. The monetary policy which is the second tool is governed by the central bank. In America, this is actually a Federal Reserve.
Charles, I. (2012) .Fiscal Policy and Monetary Policy the Initiative on Global Markets.
New York City:University of Chicago press.
Lawrence, M. (2010).Credible Commitments and Monetary Policy after the Crisis. Zurich, Switzerland: Swiss printing press.
Kaplan, J. (2011). Ensuring Sound Monetary Policy in the Aftermath of Crisis .New York: Prentice Hall press.
Sargent, T. (2010). Where to Draw Lines: Stability versus Efficiency. NewYork: Business Expert press.
Neil. (2012). Some Unpleasant Monetarist Arithmetic. Cambridge: Cambridge University press.