A financial crisis is a usual occurrence in an economy to which the governments in question come out with both monetary and fiscal stimulant packages in order to mitigate the harmful effects of such as crisis.
Both the Monetary and Fiscal stimulus packages are rolled out during a recession or when the production and employment levels are well below sustainable levels. But they both are fundamentally different from each other due to the host of other factors.
Fiscal stimulus refers to increasing government consumption or lowering of taxes.
While monetary stimulus refers to lowering interest rates or other ways of increasing the amount of money or credit.
This article will further elaborate upon the difference between Monetary Stimulus and Fiscal Stimulus within the context of the IAS Exam.
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Difference between Fiscal Stimulus and Monetary Stimulus |
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| Fiscal Stimulus |
Monetary Stimulus |
| Fiscal stimulus is a government-controlled measure that involves changing government spending and taxation to revive the economy | The monetary stimulus is controlled by central banks who target low inflation and stabilise the economic growth by increasing the amount of money available |
| The government used fiscal stimulus packages to influence overall supply and demand by cutting down on taxes, increasing spending and boosting economic growth | A monetary stimulus is a policy model adopted by central banks to manage the supply of money in the country. The primary tool of a monetary stimulus is interest rates |
| Fiscal stimulus is carried out by the government through direct spending and increase the hiring process to promote employment and growth | Monetary stimulus works in the following ways
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| Fiscal stimulus packages are the last resort to achieve price stability, steady economic growth and promote employment | A monetary stimulus puts extra money into people’s hands during times of recession |
For further reading candidates can refer to the following links:
- Monetary Policy
- Fiscal Policy
- Difference between Capitalism, Socialism and Communism
- Difference between Primary, Secondary and Tertiary Sector
UPSC Candidates can find more difference between articles by visiting the linked article.
Difference between Fiscal Stimulus and Monetary Stimulus – UPSC Notes:- Download PDF Here
Frequently Asked Questions on Difference between Monetary Stimulus and Fiscal Stimulus
Q 1. What is meant by Fiscal stimulus?
Q 2. What is meant by Monetary stimulus?
Aspirants can find the complete UPSC Syllabus through the linked article. More exam-related preparation materials will be found through the links given below:
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