Janmejay Dave ID #: 361387

Compare and contrast fiscal and monetary policy. To what extent do you see them
working together?

There are two tools government and the Federal Reserve use to steer our economy in the right
direction: fiscal and monetary policy. Monetary policy is primarily concerned with the
management of interest rates and the total supply of money in circulation and is generally
carried out by Federal Reserve whereas fiscal policy addresses taxation and government
spending, and it generally is determined by legislation.

Both the policies can work together to increase demand and increase spending and stimulate
growth thereby improving the overall quality of life by easy access to money. Further, in times
of crises, these policies can be used in conjunction to expand and contract economy. If these
policies are not used in a prudent fashion, they can create unwanted effects like the Fed trying
to create an expansive and growing economy but the government, unable to collect sufficient
tax dollars may lead to high national debt and thus bringing the economy to a standstill. On the
other hand, if the currency in the economy is doing too well which the monetary policy may
intend (like the strong US dollar currently), the exports might become more expensive and
cause the expansion to halt on the tracks. These situations make it difficult for monetary and
fiscal policy to work together.

Thus, both the policymakers may intend to use the tools in their arsenal in the same directions,
they may end up doing something entirely different or bringing to economy to a halt. Though
each side of the policy spectrum has its differences, the United States has usually uses a
solution in the middle ground, combining aspects of both policies in solving economic
problems. The Fed is more recognized when to guide the economy since they can move global
markets drastically, however the use of fiscal policy is still necessary to manage domestic
consumption and demand. Finally, if the fiscal policy is used in long term and monetary policy
for short term adjustments, it would be beneficial.