a. Monetary policy is the set of activities of a nation’s central bank that is intended to affect the money supply and the credit in the economy.
b. Fiscal policy is the set of activities of a nation’s government, including taxation and spending, that can affect an economy.
c. One needs to note that:
i. The definitions presume that there is a central bank, but some nations (e.g., Monaco) do not have a central bank.
ii. Is the central bank controlled by the government, or is it independent of the government? It makes a difference in terms of effectiveness because independent central banks are generally able to better achieve price stability than central banks controlled by the government
d. The monetary and the fiscal policy is an attempt, by the policymakers, to engineer an economy where:
i. the growth is stable and positive, and
ii. inflation is stable and low, but positive.