With appropriate examples of each, explain how the fiscal and monetary stimuli help to boost a sluggish economy.

Monetary policy and fiscal policy both are very significant tools to influence a country’s economic condition.

Monetary policy

The monetary authority of a nation adopts the monetary policy to control the interest rates for short term borrowing or the money supply which is sometimes targeted to control inflation. Its primary concern is the management of interest rates and the total supply of money in circulation.

Fiscal policy

It is a collective term that relies on taxation, government spending, and government borrowings. It is mainly associated with government revenue collection and expenditure to influence the economy of a country.

Recession

A recession period is an economical condition, where the demands fall in the businesses and the entire country begins to lose money. To overcome the losses, the companies begin laying off workers, which creates higher levels of unemployment.

Boosting the economy

  • Fiscal stimulus refers to increasing government consumption. It is the procedure of lowering tax rates. That means increasing the rate of growth of public debt will provide a boost in insufficient economic growth to fill the gap.

Monetary stimulus is the way of lowering the interest rates, quantitative easing, or other ways of increasing the amount of money or credit.

Question for UPSC Mains:
With appropriate examples of each, explain how the fiscal and monetary stimuli help to boost a sluggish economy.

 		

Published: October 3, 2017 | Modified:September 1, 2020

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