Summit CPA Review
BAR Economics · Updated November 2026

Monetary Policy or Fiscal Policy: Who Is Taking Action?

Central-bank tools are monetary policy. Tax and government-spending decisions are fiscal policy.

Monetary policy

Generally involves central-bank actions affecting interest rates, money supply, and credit conditions.

Fiscal policy

Generally involves government decisions about taxes, spending, and budget policy.

Expansionary policy

Used to stimulate economic activity through different tools depending on the policymaker.

Contractionary policy

Used to restrain demand or inflationary pressure.

The takeaway

Central bank = monetary. Taxing and spending authority = fiscal.

Related Summit guides

Economic indicatorsContinue with a related Summit CPA Review guide.Price elasticityContinue with a related Summit CPA Review guide.Scenario analysisContinue with a related Summit CPA Review guide.

FAQ

Is changing tax rates monetary policy?

No.

Are interest-rate tools associated with monetary policy?

Yes.

Can both policies affect aggregate demand?

Yes.