When President Donald Trump assumed office, he implemented numerous changes that are in stark contrast with the policies the previous administration had enacted. One of those is how the economy is run. Former President Barack Obama based the economy on monetary policy, while Trump intends to run it on fiscal policy.
While both approaches are intended for achieving higher economic growth and balancing inflation, there are major differences between the two policies.
 |
| Image source: investopedia.com |
Monetary policy
This policy is typically carried out by the Central Bank or other financial institutions or authority. The Central Bank, which is also called The Fed, influences the supply of money by incentivizing individuals and businesses to borrow and spend, resulting to an economy that grows faster than normal.
The Fed also sets the base interest rates in order for the economy to reach the target inflation rate. By increasing interest rates (to a safe level), the borrowing costs become higher, while consumer spending and investment weaken. This leads to decreased aggregate demand and inflation.
 |
| Image source: businessnewsdaily.com |
Fiscal policy
In a fiscal policy, it is the government which adjusts tax rates and levels of federal and overall spending. If the government perceives a need to raise demand and economic growth, it will cut taxes and increase spending, which results in a higher budget deficit. On the other hand, the government will raise tax rates and lessen spending, if demand and inflation need to be reduced.
Springer Financial Advisors uses a comprehensive and holistic approach in formulating wealth management strategies for its clients who aim to build a fulfilling post-retirement life. For more advice and insights about financial planning, visit this website.
