The relationship between monetary policy and fiscal policy.

Fiscal policy vs. monetary policy.

The differences between monetary policy and fiscal policy include different concepts and different tools.

The difference between monetary policy and fiscal policy is that the concept is different. Monetary policy refers to the means by which policymakers influence the macroeconomy by changing the amount of money, interest rates, and other intermediary targets. Fiscal policy refers to the guiding principles and measures for adjusting the relationship between fiscal revenue and expenditure to achieve the expected economic and social goals.

The difference between monetary policy and fiscal policy is the different instruments employed. The tools used in monetary policy include: open market operations, adjustment of interest rates, adjustment of reserve interest rates, and counter-cyclical regulation.

The tools used in fiscal policy include: easing fiscal spending, reducing fiscal spending, reducing tax revenue, and raising taxes. The similarity between monetary policy and fiscal policy is that both are means and tools for the state to adjust the economy.

The goal of both monetary and fiscal policy is to help the economy survive the financial crisis and promote efficient economic development

Relationship: 1. Both are the country's economic policies and important economic means of the country's macroeconomic regulation and control;

2. Under general conditions, fiscal policy and monetary policy work in tandem with each other. Since fiscal policy and monetary policy have their own characteristics in the role of economic life, in the situation of a serious economic depression in which the monetary policy is not effective, the fiscal policy is more powerful than the macro trembling and the royal government.

3. Fiscal policy and monetary policy are the opposite in curbing economic overheating, because it takes time to change the tax law, and if fiscal policies such as increasing taxes are adopted, it will be impossible for fiscal policy to have the flexibility and timeliness of monetary policy.

Monetary policy is a variety of policies and measures for banks to use various tools to regulate the amount of money in order to achieve the set goals, and then affect the macroeconomic operation. It mainly includes credit policy and interest rate policy, shrinking credit and raising interest rates are "tight" monetary policies, which can suppress aggregate social demand, but restrict investment and short-term development, on the contrary, it is a "loose" monetary policy, which can expand aggregate social demand, which is beneficial to investment and short-term development, but is easy to cause an increase in the inflation rate. Fiscal policy includes the national tax policy and fiscal expenditure policy, and tax increases and expenditure cuts are "tight" fiscal policies that can reduce the total amount of social demand, but are not conducive to investment.

On the contrary, it is a "loose" fiscal policy, which is conducive to investment, but the expansion of total social demand is likely to lead to inflation.

Although these two policies have a strong ability to adjust in macroeconomic operations, it is difficult to fully achieve the macroeconomic regulation and control objectives by relying only on a bad omenous policy, and without the cooperation of both sides, the implementation effect of a single policy will be greatly weakened, which requires the two to coordinate with each other, cooperate closely, and give full play to their comprehensive advantages. There are four different combinations of fiscal policy and monetary policy, which one depends on the objective economic environment, in fact, it mainly depends on the judgment of the objective economic situation. In a nutshell, "one loosening and one tightening" is mainly to solve structural problems; The use of "double loose" or "double tight" alone is mainly to solve the total volume problem.

The effect of fiscal policy and monetary policy refers to the increase or decrease in equilibrium output caused by certain fiscal and monetary expansion or contraction policies. The greater the increase or decrease, the stronger its effect; Otherwise, its effectiveness is weak.

1. General linear IS LM model.

For the given normal LM curve, the flatter the IS curve, the stronger the fiscal policy effect; Conversely, the weaker. For the given normal IS curve, the flatter the LM curve, the stronger the fiscal policy effect. Conversely, the weaker. For the given normal LM curve, the flatter the IS curve, the stronger the monetary policy effect; Conversely, the weaker.

For the given normal IS curve, the flatter the LM curve, the weaker the effect of the long-selling monetary policy. On the contrary, the stronger.

2. Extreme Keynesianism.

One is the infinite elasticity of interest rates for investment demand (Keynesian trap). The LM curve is horizontal, which means that when interest rates are lowered to a very low level, people's demand for money is infinite. Fiscal policy works best because the crowding out effect is zero. Monetary policy is ineffective.

Second, the interest rate elasticity of investment demand is zero or very small. The IS curve is vertical or close to vertical, which means that private investment is very insensitive to changes in interest rates, that is, private investors' investments have little to do with changes in interest rates.

3. The situation of classical reverence and annihilation.

The interest rate elasticity of money demand is zero, and the classical case refers to a situation where the IS curve is horizontal and the LM curve is vertical, where monetary policy is effective and fiscal policy is ineffective. The interest rate coefficient of investment demand is very large, that is, how much the increase in spending is how much private investment spending is squeezed out, so fiscal policy is ineffective. And there is no speculative demand for money, and monetary policy is completely effective.

4. General nonlinear IS LM model.

In general, the IS curve becomes more and more flat as income increases, and the slope of the LM curve rises as income increases. Cause.

Therefore, during the period of economic depression with low income level, the effect of fiscal policy was better, while the effect of monetary policy was less. In the boom period when the income level is higher, the effect of monetary policy is better, while the effect of fiscal policy is less. Under normal circumstances, both fiscal policy and monetary policy have a certain effect in promoting economic stability, and adjustments can be made accordingly according to the actual economic situation.

Legal Analysis:1The concept is different:

Monetary policy is a means formulated and implemented by financial authorities to influence macroeconomic operations through monetary amounts, interest rates, or other intermediary objectives.

Fiscal policy is the guiding principle and measure for adjusting the relationship between fiscal revenue and expenditure in order to achieve the expected economic and social development goals.

2.The adoption of tools is different:

The tools used in monetary policy include open market operations, adjustment of interest rate levels, adjustment of deposit reserve ratios, and in the process of economic regulation and control, monetary policy and fiscal policy are often combined to carry out "counter-economic cycle" regulation. The tools used for fiscal policy include expanding or reducing fiscal spending, cutting or raising taxes, etc.

3.The formulators are different:

Monetary policy is set by the People's Bank of China. Fiscal policy is usually set by ****.

4.The content is different:

Monetary policy is related to interest rates and credit. Fiscal policy is related to fiscal revenues and expenditures.

Legal basis: Article 15 of the Constitution of the People's Republic of China The State implements a socialist market economy. The state has strengthened economic legislation and improved macroeconomic regulation and control. The State prohibits any organization or individual from disrupting the social and economic order in accordance with law.

Fiscal policy: When interest rates are lowered to a very low level, the interest loss on holding the currency is small, but if the currency is purchased into bonds, it will only ** and not rise because the bonds are unusually high (very low interest rates indicate extremely high bonds**), so that the risk of loss of the monetary capital of the bond purchases becomes very large. At this time, people are reluctant to buy bonds even if they have idle money, which means that the speculative demand for money becomes large or even infinite, and the economy falls into the so-called "liquidity trap" (also known as Keynesian trap), when the money demand curve and thus the LM curve are horizontal.

If spending increases, the IS curve shifts to the right, and the demand for money increases, which does not cause a "crowding out effect" due to a rise in interest rates, so fiscal policy is extremely effective. On the contrary, if the money supply is increased at this time, it is impossible to bring the interest rate down further, because people no longer want to buy bonds with excess money and prefer to keep the money in their hands, so the bonds will not rise, that is, the interest rate will not fall. In this case, it is impossible to increase interest rates and increase investment and national income by increasing the money supply, and monetary policy is ineffective.

Monetary policy: According to the view of Western economists, because the speculative demand for money is inversely related to the interest rate, the LM curve is inclined to the upper right, but when the interest rate rises to a considerable height, the interest loss caused by keeping idle money will become large, and the risk of capital loss caused by further interest rate rise will become small, which makes the speculative demand for money completely disappear. This is because interest rates are high, which means that bonds** are low.

When the bond ** is low below the normal level, buying the bond will no longer make the principal suffer the loss of the bond ****, so any idle currency in the hand can be used to buy bonds, people are unwilling to keep the currency in their hands, that is, the currency speculative demand completely disappears, and the money demand is all generated by the transaction motive, so the money demand curve and thus the LM curve is manifested in the shape of a vertical line. In this case, the fiscal policy of variable budget revenues and expenditures is unlikely to affect output and revenue. The policy of increasing spending is completely ineffective, because when spending increases, an increase in the demand for money leads to a large rise in interest rates (because the interest rate elasticity of money demand is extremely small, almost zero), which leads to a large crowding out effect, and thus makes the fiscal policy of increasing spending very small.

On the other hand, monetary policy that changes the money supply has a significant effect on national income. This is because, when people only have trading demand and no speculative demand, if the expansionary monetary policy is adopted, these increased currencies will all be used to buy bonds, and people are reluctant to hold money for speculation, so that increasing the money supply will lead to a large rise in bonds, that is, interest rates will fall sharply, so that investment and income will increase significantly, so that monetary policy is very effective.

Monetary policy refers to the measures taken to influence money, interest rate levels, and credit conditions in order to regulate economic activity. Fiscal policy refers to the measures taken to affect the country's fiscal balance and expenditure, such as by reducing or increasing taxes, reducing or increasing public spending. Both help regulate the economy, but in different ways.