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Q)What do you mean by monetary and fiscal policy? What are the similarities and differences between fiscal policy and monetary policy? What are the three goals of fiscal and monetary policy? Discuss what type of fiscal and monetary policy currently government of Pakistan adopted and why?
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Macroeconomics is a part of economics that deals with the production, decision and allocation concerning the whole economy. As economics developed as a subject that deals with the allocation of scarce resources among humans with unlimited wants, more focus was put on developing models that would describe the economic situations of any nation.
First, the classical economy was developed, which talked about the efficient allocation of goods and services among people who needed it at an effective price rate. However, after the Great Depression, Keynes came into the picture and explained an entire new allocation system. According to him, government intervention was required to be an economy in equilibrium.
The government of an economy plays a major role in the development of an economy. With the help of fiscal policies and monetary policies, the government ensures that every individual in the economy has a steady income, maintains economic stability and creates economic development.
Fiscal policy is the government spending and taxation with which a government helps run an economy. With the help of fiscal policies, the government is able to change the consumption pattern of individuals, which also helps in keeping price rise in check and ensures that output is distributed in the economy.
Monetary policies are mainly formulated by the Central Bank, which is a primary bank under the government of the central body of an economy. They regulate the money supply in the economy, produces new fiat money and is responsible for the financial situation of an economy.
Both the fiscal and monetary policies are government interventions aimed at bringing stability, both output and monetary, in an economy. They are made by government interventions when the economic stability of a country is at stake.
The goals of monetary and fiscal policies are: