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What's the difference between Monetary and Fiscal Policy? Well, how about we start with your own personal finances. Before we get more towards corporate finances.

The government lowers your income tax because this politician wants to stimulate economic growth. Now your after tax income or personal earnings is higher than it was before. Ever look at your after tax income when you get a new job and go, oh, that's it? Ugh. Well now with the lower tax rate, you have more money to spend and you can enjoy life a bit more. You spend more, companies have higher sales and earnings, they may hire more workers. Now the economy is stimulated. That's fiscal policy. Fiscal policy relates to taxes, so when the corporate tax rate is lowered, corporate earnings rise immediately. Companies have more cash to spend, they can invest more for the long-term. Okay. Now, monetary policy, no one interest rates go down and your credit card debt becomes less expensive and then you spend a little more money or that house you've wanted becomes easier to finance with mortgage debt, yeah, good stuff. When the Federal Reserve influences interest rates to go lower or higher, that's called monetary policy. Lower rates also helps businesses spend more because that production plant that company X has been wanting to set up, can now be financed with cheaper debt. Now they'll open the plant and hire new workers for it. Now the economy is stimulated. Now you're smarter.

Monetary and fiscal ...

So what is the difference? 

Well, they're both used by governments to quell economic growth if there are economic excesses, or spur growth if there isn't enough of it. Most of the quelling is done through monetary policy. 

Let's get into it. 

Do you know when interest rates go down and your credit card debt becomes less expensive, and you spend a little more money, or that house you've wanted becomes easier to finance with mortgage debt?  

When the Federal Reserve influences interest rates, that influences the economy. Lower rates is a stimulant. 

That's monetary policy. 

Okay, here's what fiscal policy is:

With a lower tax rate, you have more money to spend. That's fiscal policy. It's related to taxes. 

Want to see how all of this impacts companies? Watch the video above to see.  

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