Today we will cover the topic of monetary policy and fiscal policy
Monetary means the decisions taken by the RBI
and Fiscal means the decisions taken by the Central Govt.
Monetary policy could have 2 impacts on the economy
1. growing economy
2. slowing economy
Similarly, Fiscal also has the same 2 impacts
So at any point, the combination of monetary + fiscal could either be added or subtracted or canceled.
Lets look at each policy in detail
RBI (monetary policy) can only control the supply and demand of money
They do that by increasing or decreasing the Repo rate (interest rates)
When interest rate increases, fewer businesses will take loans and therefore the demand will slow down and the economy will slow down.
Govt (fiscal policy) on the other hand decides to spend or save more
Govt. spending means — new road construction, bridges, tunnels, infrastructure etc
When Govt. spends more, more people get employment and the economy will grow faster
Currently, we are in a situation where RBI has hiked the rates whereas Govt. is spending more..