Impact of Monetary and Fiscal Policies
Kuvakäsikirjoitus Teksti
- Fiscal policy refers to government spending and taxation policies of the federal government, whereas monetary policy refers to the actions that central banks have on the influence of money supply in order to stabilize the economy.
- What's the difference between fiscal and monetary policy?
- $4.03
- $4.89
- Recent government actions that have affected the economy is the increase in gas prices.
- $5.26
- When gas prices rise, consumer spending tends to begin to fall, which means that people are spending more of their money of gas and leaving little to no money to spends on other goods and services. Wouldn't it be nice to go back when gas prices were a $1 to $2 per gallon?
- Mr. Abbott, could you please describe the Texas Economy right now.
- As of right now the current state that the Texas Economy is in is considered to be good. Texas has the second largest GDP in the United States, being just behind California, and has a gross state product of $2.0 trillion as of 2021. The GDP per capita is $60,922 and the population below the poverty line is 15.8%.
- Hey, do you know if the Fed has taken any actions regarding the federal funds rate?
- The Fed essentially implements monetary policy by influencing the federal funds rate. By being able to influence the federal funds rate the Fed has the ability to alter the cost of borrowing within the economy, which affects the demand for goods and services. But if the Fed were to lower the reserve requirements the banks would be able to loan more money, which would increase the overall supply of money in the economy.
- Okay, but will everything that you just told me help or hurt the Texas Economy?
- Well since the Fed has the ability to alter the federal funds rate then if they raise it, then it would make inflation fall which would help the Texas economy, but if the Fed lowers the federal funds rate then it would hurt the economy because it would cause inflation to go up.
- Yes, you are correct. Monetary and Fiscal policies are somewhat similar, but the two terms actually do contradict each other because the Fed likes to take money out and the government likes to spend the money.
- Do you know if fiscal and monetary policies contradict each other, because to me they both sound the same.
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