The main differences between fiscal policy and monetary policy include: | Aspect | Fiscal Policy | Monetary Policy | |------------------------|-------------------------------------------------|---------------------------------------------| | Definition | Government actions related to spending and taxation to influence the economy. | [[Central banks]] actions related to [[money supply]] and interest rates to influence the economy. | | Main tools | Government spending, taxes, and transfer payments (e.g., social security). | Interest rates, open market operations, reserve requirements, and quantitative easing. | | Primary actors | National government (e.g., [[Congress]], Finance Ministry, Treasury). | Central bank (e.g., [[Federal Reserve]], European Central Bank, Bank of Japan). | | Objective | Promote economic growth, full employment, and price stability. | Control inflation, maintain price stability, and promote economic growth and employment. | | Time horizon | Typically medium to long-term. Budgets and fiscal plans are often set annually. | Typically short to medium-term. Central banks adjust policies more frequently (e.g., monthly, quarterly). | | Effectiveness | May be more effective during recessions, when monetary policy is constrained by the zero lower bound on interest rates. | May be more effective during normal economic conditions when fiscal policy is slow or politically constrained. | | Political influence | Highly influenced by political decisions and priorities, often leading to debates and delays in implementation. | Central banks are typically more independent, with less direct political influence, allowing for quicker policy adjustments. | | Direct impact on people| Directly affects people through changes in government spending, taxes, and transfer payments. | Indirectly affects people through changes in interest rates and money supply, influencing borrowing, saving, and investment decisions. |