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Fiscal and Monetary Policy

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Explain the following scenarios. Determine if these represent fiscal policy or monetary policy, or neither fiscal or monetary policy not all government decisions are macro-economic in nature.

a.) President Obama, through the EPA, and with the agreement of the automobile companies, increased the mileage requirements for automobiles sold in the US.

b.) For the past several years subsidies have been given for the production of corn based ethanol fuel.

c.) Due to the nuclear crisis in Japan, inspections of United States nuclear plants are taking place and additional safety requirements will be written.

d.) There has been some speculation that tax deductions, such as the one allowed for interest on home mortgages, will be eliminated or altered.

e.) The Federal reserve Board of Governors has recently stated they will maintain interest rates at or near their current low levels until 2014.

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Solution discusses the Fiscal and Monetary Policy

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Fiscal policy is the policy which deals in spending of government, taxes and public debt. Fiscal policy tools which can be used to stimulate the economy are increase in government purchases, a reduction in taxes, and/or increase in transfer payments. As per tutor2u, "Monetary Policy involves changes in the base rate of interest to influence the rate of growth of aggregate demand, the money supply and ultimately price inflation." One should first understand the monetary policy. Monetary policy is a policy which influences ...

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