ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
Which statement about the differences between monetary policy and fiscal policy is correct?
Monetary policy is usually run by the central bank through interest rates and the money supply, while fiscal policy is run by government through taxation and public spending. The other statements reverse the tools, wrongly assign control to commercial banks, or make false claims about their scope.
- AMonetary policy is normally operated by the central bank using interest rates and money supply, whereas fiscal policy is operated by government through taxation and spendingCorrect
- BMonetary policy uses taxation and public spending, whereas fiscal policy uses interest rates
- CBoth are set solely by commercial banks to manage their own lending
- DMonetary policy affects only the supply side, whereas fiscal policy affects only exchange rates
Explanation
Monetary policy works through the cost and availability of money, usually via the central bank. Fiscal policy uses government taxation and spending decisions. The second option reverses the tools, the third wrongly assigns policy to commercial banks, and the fourth is an invalid distinction.
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