Macro economic policy mind map

Monetary Policy

Monetary Policy is the policy which allows the government, central bank,or a monetary authority to control the supply of money, the availability of money, the value of money, and interest rates in order to attain objectives such as achieving the stability of the economy.

Monetary Policy also has two different parts, and they are called contractionary and expansionary policy:

• Contractionary Policy is aiming at restricting demand by reducing money supply.
• Expansionary Policy is aiming to increase demand by increasing the money supply.

Fiscal Policy

Fiscal Policy is the use of government spending and revenue to influence the economy, and is contrasted with the other macroeconomics policy, the monetary policy. The two main devices in fiscal policy are government spending and taxation. By changing government spending and/or taxation, several variables can be changed, such as:

• Aggregate demand, and therefore the level of economic activity
• Resource Allocation
• Distribution of Income

Fiscal policy refers to the overall effect of the budget outcome on economic activity. There are two parts to the fiscal policy: the expansionary and contractionary policies:

• Expansionary policy is the increase in government spending either through a simple increase in how much the government allocates its resources to spend or decreasing tax revenue.
• Contractionary policy is aiming at increasing government spending and increasing tax revenue in order to reducing demand in economy.