In part 1 of this series, I explained about monetary policy and how it helps with cushioning the impact of a recession.

In this post, I would like to go into detail about fiscal policy which is the policy of adjusting government spending and taxation, a common tool of the government to regulate the economy.

Monetary policy, on the other hand, is a tool used by central banks, which are independent from the government, to control the money supply and interest rates in the economy.

Let me illustrate the difference between monetary policy and fiscal policy with a story below

Uncle Fed And Uncle Sam

You are in a rut. You have lost your job and having huge amounts of student loans. You still need to put food on the table for you family and you may not be able to make the next month’s rent payment.

Your uncle