The Tug-of-War: Fiscal vs. Monetary Policy

Your wallet is in a constant tug-of-war between the government and the Fed. First,

you have fiscal policy. That’s the government using taxes and spending.

During a recession, they might cut your taxes or spend more to create jobs and get money flowing.

When inflation gets too high, they do the opposite: raise taxes or cut spending to cool

the economy down. Then there’s the Fed, using monetary policy. They control the

actual money supply. To boost the economy, they make it cheaper for banks to lend money.

To fight inflation, they make borrowing more expensive.