E.4.8+Define+and+explain+fiscal+and+monetary+policy.



=Define and explain fiscal and monetary policy.=

===**Link to information on economists 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.

__**Monetary Policy**__
Monetary Policy is the process in which the "monetary authority" 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.

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.

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