Question

How are Fiscal Policy and the Federal Reserve similar?
1. They always must have Congressional approval before passing
2. They both try to promote economic stability
3. They both have a Board of Governors
4. They both use the same tools to fix economic problems

Answer 1

Correct Answer - Option 2 : They both try to promote economic stability

The correct answer is They both try to promote economic stability.

• Fiscal policy of India always has two objectives, namely improving the growth performance of the economy and ensuring social justice to the people.
• Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply.
• Some of the major instruments of fiscal policy are as follows: Budget, Taxation, Public Expenditure, public revenue, Public Debt, and Fiscal Deficit in the economy.
• Objectives of Fiscal Policy are given below:
  • To maintain and achieve full employment.
  • To stabilize the price level.
  • To stabilize the growth rate of the economy.
  • To maintain equilibrium in the Balance of Payments.
  • To promote the economic development of underdeveloped countries.
• Monetary policy in the United States comprises the Federal Reserve's actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates--the economic goals the congress has instructed the Federal Reserve to pursue.
• Monetary Policy: 
  • It refers to the management of money supply for achieving macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity. 
  • In India, the Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy. This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934.
  • The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth.
• Both policies try to promote economic stability.