Monday, August 24, 2009

Difference between Monetary Policy and Fiscal Policy

Fiscal policy came to the forefront after the Keynesian revolution of 1936. It was Keynesian functional finance approach which helped in rescuing the economies, which was shaken by the great depression. Even today it is the fiscal policy which has dominated the policy making of the government all over the world irrespective of whether they are developed or undeveloped. On the other hand monetarist still is of the opinion that “economy is essentially to a great extent based on monetary phenomenon. Though today it is the monetary revolution which has resulted in a great degree of flexibility in the economics. For the time being it may be the monetary economics which is dominating in the form of the role of international financial institutions, the developed as well as under developed countries financial institutions, flow of easy capital, the government deficit finance policies, the innovation in banking system in the form of ATM, credit cards, easy availability of loans for whether productive purpose unproductive purpose, and the change in habits and motives of demand for money has resulted in the dynamism of the economics of the world. “It is very difficult to predict the collapse of international monetary economic system, as well as the domination of service sector in the economy in the days to follow”.

“There is no time bound for such a collapse”.

The economics of the world today is not fully dependent on only monetary policy but a blend of both along with some adjustment.


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