Explain and discuss the differences between fiscal and monetary policy.

It is easy to possibly confuse or conflate the notion of fiscal policy with that of monetary policy. Primary to understanding fiscal policy is that is focuses more so on tax rates, deficits and surpluses through government spending. The fiscal policy of an administration can be found in the way in which it treats revenue collection, and this is primarily through taxation of the nation. Fiscal policy can be used to stimulate an economy by lowering taxes, or injecting capital into the economy through social and working programs. Fiscal policy, since it is concerned tax and revenue, is well-regulated through Congress primarily. The largest difference in the way that the fiscal policy is separate from the monetary policy is in the way that fiscal policy manipulated the demand within any given economic structure while monetary policy focuses on the supply in an economy through the control of interest rates and printing.

Monetary policy does its job to control inflation through the raising or lowering of interest rates depending upon the economic environment within the country at any given time. These policies together are the ideology and theories of John Maynard Keynes, a British economist. The system suggests that the fiscal policy is structured through bodies like the Treasury and Congress, while the monetary policy is run through bodies like the Central Bank and Federal Reserve.