Fiscal policy vs Monetary policy:
What is fiscal policy:
fiscal policy is the policy related to taxation system. government controls the economy using the fiscal policy. if they want to increase money supply in economy then tax rates are reduced, it is called liberal fiscal policy and when goverment need to tighten the money supply then tax rates are increased it is called hawkish fiscal policy.
What is Monetary policy:
monetary policy is the policy related to the money supply of the economy. Central bank of a country uses this to control the economy. there are various tools in monetary policy:
Repo rate: It is the rate wich Central bank gives loan to banks
Reverse repo rate : At this rate Central bank borrows from other banks
Bank rate : It is the penalty repo rate
MSF rate:
These rates are increased to control the inflation and decreased to control the recession.
Open market operations: in these operations, central bank buys govt securities to increase money supply in the economy.
