Fiscal and monetary policies ensure the smooth running of the economy of a country. Flexible policies that can be changed over time make the economy strong and stable.


This is the way the government uses taxation and government spending to influence the economy. The government may change tax rates or tax rules about liability to tax. Government spending on infrastructure projects has an impact on overall business.


This is the action of a Central Bank – a government institution which is meant to be above politics. A Central Bank controls interest rates and money supply. The target of monetary policy is to achieve a desired level or rate of growth.


Decreasing interest rates can give the economy a short-term boost because people can afford to borrow more and spend more.


Increasing interest rates can 'slow' an economy by decreasing borrowing for buying houses and investment in business. It an attempt to control inflation or rising prices.


Fiscal and monetary policies are extremely vital in keeping an economy strong and secure.


Source: Oxford Dictionary of Economics; Money Polo online.


The information in this article has been taken from several reliable sources but does not necessarily reflect the views of UBT. No short article can cover a topic completely; it is not intended that you should rely on this information for business decisions.