Focus Question:  How do economists define and explain fiscal and monetary policy?

Topics on the Page

Fiscal Policy

Monetary Policy

Race and Gender

COVID-19 Impacts

Cross-Links

• Expansionary and Contractionary Government Policies

• The Federal Reserve System

• John Maynard Keynes, Ludwig von Mises, Friedrich von Hayek, and Milton Friedman

"What is the Difference Between Fiscal and Monetary Policy?" from Dr. Econ (the Federal Reserve Bank of San Francisco).

Fiscal Policy

"Fiscal policy is the use of government spending and taxation to influence the economy." 1

"Fiscal policy involves the use of government spending, taxation and borrowing to influence both the pattern of economic activity and also the level and growth of aggregate demand, output and employment.

• It is important to realize that changes in fiscal policy affect both aggregate demand (AD) and aggregate supply (AS)." 2

The two factors in Fiscal Policy are used to control three factors:

• "Aggregate demand and the level of economic activity;
• The pattern of resource allocation;
• The distribution of income."3

Click for more information and links on Fiscal Policy

Click here to play an interactive game where players are challenged to use fiscal policies to fix the United States' federal budgeting crisis.

To read a comprehensive article examining the pros and cons of expansionary fiscal policy and examples of the use of fiscal policies in United States history, click here.

Click here to read about fiscal policy on The Concise Encyclopedia.

To read about the implementation and effects of fiscal policies in the developing nations of Latin America,
click here.

For a lesson plan one Fiscal Policy for 11-12th graders, click here. 

Monetary Policy

Monetary Policy is the process in which the "monetary authority" (Central Bank) controls the supply of money.

Its main goal is to promote "economic growth and stability"

1.Expansionary- "increases the total supply of money in the economy more rapidly than usual.

• Expansionary policy is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expanding."4

2. Contractionary- "Expands the money supply more slowly than usual or even shrinks it.

• Contractionary policy is intended to slow inflation in hopes of avoiding the resulting distortions and deterioration of asset values."5

U.S. Monetary Policy

Board of Governors of the Federal Reserve System

To examine the history of the Federal Reserve and its growing influence on the U.S economy since its creation, click here.

To learn about the effectiveness of monetary policies in East Asia and the Pacific regions, click here.

For a video on Anna Jacobson Schwartz, a leading monetary economist in the 60s-70s, click here.

Click here to watch a video on fiscal policy.

Click here to watch Khan Academy explain fiscal and monetary policy.

Click here to watch an engaging video detailing the differences between fiscal and monetary policies. (Another one)

Click here for a lesson plan designed to enable students to distinguish the differences between monetary and fiscal policies.

Click here for games about managing money to help students understand the way money flows through our economy.

Here is another website full of games

Here is a video about Monetary policy: https://www.frbatlanta.org/about/fed-explained/2016/monetary-policy.aspx

- explained the purpose of it, mentioned specific events. 

- has a transcript of the video too

- explained by the FED (Federal Reserve System)

Here is a video about the 1913 Federal Reserve Act: https://www.investopedia.com/terms/f/1913-federal-reserve-act.asp

- explains a very important monetary act that helped curb economic crisis.

How Race is Involved?

Here is a link to a great reading: Monetary Tightening and the Dynamics of US Race and Gender Stratification, by Stephanie Seguino and James Heintz: https://www.jstor.org/stable/23245191?seq=1

- this article talks about the differentiation in treatment and effects on minorities or color and gender

Here is a link to another great reading on this topic: Monetary Policy and Racial Inequality. https://www.newyorkfed.org/research/staff_reports/sr959 . 

- Below the short summary is a full PDF to the reading.

How Gender is Involved today?

Here is a blog/ website from LiveMint: https://www.livemint.com/

- this discusses research done by a female Indian-American economist about the role and importance of women in monetary and fiscal policy making

Here is another: https://voxeu.org/article/why-women-matter-monetary-policymaking

- this one again discusses the same information, but is also accompanied by diagrams and graphs

Here is an article that goes over the importance of policies that support women, and some of the policies we have in place now that do that. 

*IMPORTANT*: Present Day Relevance:

How has COVID-19 affected Monetary and Fiscal Policy?

Here are THREE links:

https://www.cato.org/blog/covid-19-implications-monetary-policy-fed-independence

- this one talks specifically about the FED and what COVID has done to affect it

https://www.stlouisfed.org/publications/regional-economist/fourth-quarter-2020/monetary-policy-fiscal-policy-responses-covid-crisis 

-this one talks about all of the fiscal and monetary policies implemented during Covid 19 in the US

https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#U

- this website, shows the policy and actions of EVERY COUNTRY IN THE WORLD

- there is a lot of information here

 Match the definitions to their words!

1. FISCAL POLICY

2. MONETARY POLICY 

3. 1913 FEDERAL RESERVE ACT

A.) the use of government spending and taxation to influence the economy. Governments typically use fiscal policy to promote strong and sustainable growth and reduce poverty.

B.) created the Federal Reserve System, known simply as "The Fed."It was implemented to establish economic stability in the U.S. by introducing a central bank to oversee monetary policy. 

C.) the process in which the Central Bank controls the supply of money.

Question and Feedback submitted by Rose Dearborn (May 2023)