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Difference between Monetary stimulus and Fiscal stimulus?

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2009-04-05 14:15:00
2009-04-05 14:15:00

Monetary stimulus involves the manipulation of the available money supply within the economy.This can happen essentially in following ways

1) Alter the reserve Ratio: Reserve ratio is the percentage of assets that commercial banks have to keep on deposit with a Central Bank (Fed in US, RBI in India). Lower the Reserve ratio, more money the institutions can flow out in market

2) Lowering Discount Rates: These are the rates at which financial institutions loan money from Central Banks (Fed in US). Lowering discount rates will encourage borrowing and more flow of money in market

Fiscal Stimulus on the other hand means "Increased Government Spending" in Infrastructure etc (thereby creating more jobs ) and "Higher Tax Cuts" (thereby increasing the purchasing power of people

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