Monetary and Fiscal Interactions

Monetary and fiscal interactions refer to how a country's central bank (monetary policy) and government (fiscal policy) work together to manage the economy. Monetary policy involves controlling interest rates and money supply to influence economic growth and inflation, while fiscal policy involves government spending and tax policies to affect economic activity. Their interactions can either support or counteract each other; for example, if the central bank lowers interest rates to boost the economy, but the government raises taxes, the effects may offset. Understanding their relationship helps analyze how economic stability is maintained or disrupted.