Mechanics of Monetary and Fiscal Policy

Monetary and Fiscal policies are the two economic policies employed by the government in an economy to control the aggregate demand.

Using the fiscal policy, the government controls their own expenditure and revenue collection in order to control the economy.

Using the monetary policy, the central bank of the country influences the money supply and interest rates in the economy to stimulate demand, control inflation, and stabilize currency.

The following video by Khan Academy explains the basic mechanics of monetary and fiscal policy.