How do fiscal and monetary policy differ, and who implements each?

How do fiscal and monetary policy differ, and who implements each?

• A. Fiscal policy uses money supply and taxation; monetary policy uses government spending.
• B. Fiscal policy uses taxation and spending; monetary policy uses the money supply and interest rates and is implemented by the Federal Reserve.
• C. Fiscal policy uses the money supply; monetary policy uses taxation and spending.
• D. Fiscal policy and monetary policy are both implemented by the President.

Answer: (B)

Fiscal policy shapes the economy through government spending and taxes, while monetary policy steers the economy by influencing the money supply and interest rates. Fiscal policy uses taxation and government spending decisions to affect aggregate demand, and it is carried out by the elected branches—Congress and the President through the budget. Monetary policy controls how much money is in circulation and the cost of borrowing, using tools to set interest rates, and is conducted by the Federal Reserve. The correct idea matches: taxation and spending for fiscal policy, money supply and interest rates for monetary policy, with the Federal Reserve implementing the latter. The other statements mix up what each policy uses or who runs it, such as linking monetary policy to taxes or spending, or claiming the President directly runs monetary policy.

Fiscal policy shapes the economy through government spending and taxes, while monetary policy steers the economy by influencing the money supply and interest rates. Fiscal policy uses taxation and government spending decisions to affect aggregate demand, and it is carried out by the elected branches—Congress and the President through the budget. Monetary policy controls how much money is in circulation and the cost of borrowing, using tools to set interest rates, and is conducted by the Federal Reserve. The correct idea matches: taxation and spending for fiscal policy, money supply and interest rates for monetary policy, with the Federal Reserve implementing the latter. The other statements mix up what each policy uses or who runs it, such as linking monetary policy to taxes or spending, or claiming the President directly runs monetary policy.