Fiscal And Monetary Policy And Their Importance For The Country Essay

Fiscal And Monetary Policy And Their Importance For The Country - Essay Example Monetary policy is the stabilization of macroeconomic fundamentals, such as those relating to stable prices, stable growth rates for the economy, and the levels of employment and unemployment, with the ideal being full employment. In the United States, moreover, the existing mandate to the Federal Reserve Board emanating from Congress is for the former to promulgate fiscal policy decisions that will push employment numbers to the maximum as well as achieve stability in prices of goods and services (Board of Governors of the Federal Reserve System, 2014; Investopedia LLC, 2014l SparkNotes LLC, 2014). Separate from this general two-component mandate, however, the US Central Bank has autonomy with regard to the operational aspects of achieving those mandates, and that means that the US Federal Reserve Board has the independence to chart monetary policy without intervention from the US Congress. In contrast, when one talks about fiscal policy, one talks about things that relate to the wa y government raises revenues through taxation, in order to finance its activities in terms of government expenditures (Hipple, 2014); Investopedia LLC, 2014 (b); Powers, 2014). In contrast, too, the Federal Reserve Board plays no role in the way fiscal policies are crafted and enabled. Those latter aspects of fiscal policy are entirely within the power of Congress and the White House and exclude the central bank (Board of Governors of the Federal Reserve System, 2014; Krugman, 2012). In other countries as well, these distinctions between fiscal and monetary policies hold (Leigh and Stehn, 2009; Traclet, 2004). As the name implies monetary policy refers to the policy, as the controlled bank, pertaining to the amount of money in circulation in the economy. The mechanisms of control of the money supply or the effecting of monetary policy include tweaking interest rates for loans, as well as tweaking monetary reserve requirements for banks.