As the previous comment says, the main difference between fiscal and monetary policies is the subject changing to achieve macroeconomic goals. While fiscal policies change (increase or decrease) tax rates and government spending, monetary policies change (increase or decrease) interest rates and money supply. Also, government sets fiscal policies, while central bank sets monetary policies.
I am not quite sure what you mean by versions of fiscal/monetary policies, but I will assume that you are asking about expansionary and contractionary policies. These are the details for both monetary and fiscal policies.
I. Expansionary Fiscal Policy
Expansionary fiscal policy increases government spending or decreases tax rate (or both) to mainly increase an economy's aggregate demand (AD), to ultimately achieve economic growth. In order to help your understanding, this is the equation to calculate aggregate demand: (Consumption) + (Investment) + (Government Spending) + (Export - Import).
By increasing government spending, an economy can directly increase AD as government spending is one of its factor. An increase in AD will result in an extension in aggregate supply (AS), and increase in Real GDP. This allows an economy to experience growth, which may also help to achieve other macroeconomic goals, such as low unemployment rate, even distribution of income, etc.
By decreasing tax rate, consumers' purchasing power increases due to overall lower prices across an economy. This increases consumption, a factor of AD, which indicates an increase in AD. As I mentioned before, increase in AD results in economic growth and other macroeconomic goals.
However, increase in AD through expansionary fiscal policy causes extension in AS, which may result in an increase in average price level (APL), which may cause higher inflation rate.
II. Contractionary Fiscal Policy
Contractionary fiscal policy is basically the opposite of the expansionary fiscal policy. It decreases government spending or increases tax rate (or both) to mainly lower an economy's inflation rate.
For contractionary fiscal policy, the chain of analysis is basically the opposite of expansionary fiscal policy's. This policy ultimately results in a decrease in AD, which allows contraction in AS, lowering APL, lowering inflation rate.
However, opposite to expansionary fiscal policy, contractionary fiscal policy may decrease the rate of economic growth as decrease in AD may cause decrease in RGDP.
III. Expansionary Monetary Policy
As I mentioned before, monetary policies use interest rates and money supply unlike fiscal policies. Expansionary monetary policy has the same target with expansionary fiscal policy, economic growth. It decreases interest rates and increases money supply to do so.
By decreasing interest rates, consumers may have higher incentives to spend money rather than saving those due to low interest rates. Also, increase in money supply means that more money is available and consumers can more easily borrow those money. Both aspects of this policy may result in higher purchasing power for consumers, increasing consumption, a factor of AD. Similarly to expansionary fiscal policy, increase in AD results in an increase in RGDP, resulting economic growth and other macroeconomic goals.
However, as I mentioned before, increase in AD may cause high inflation rate due to increase in APL. In addition, higher supply of money may depreciate/devaluate the country's currency, which may result in lower exchange rate, and more negative side effects.
IV. Contractionary Monetary Policy
Likewise, contractionary monetary policy is the opposite of expansionary monetary policy. It increases interest rates and decreases money supply to mainly reduce inflation.
For contractionary monetary policy, the chain of analysis is basically the opposite of expansionary monetary policy's. This policy restricts the amount of money flowing in an economy, ultimately decreasing AD, contracting AS, lowering APL, and lowering inflation rate.
However, similarly to contractionary fiscal policy, contractionary monetary policy may decrease the rate of economic growth as decrease in AD may cause decrease in RGDP.
As you can see, demand side policies (both fiscal and monetary) can achieve some macroeconomic goals, but also has some side effects.
This answer is quite long, but I hope it appears clear to you. Does this answer your question?
Hi Karim, thank you for your question.
As the previous comment says, the main difference between fiscal and monetary policies is the subject changing to achieve macroeconomic goals. While fiscal policies change (increase or decrease) tax rates and government spending, monetary policies change (increase or decrease) interest rates and money supply. Also, government sets fiscal policies, while central bank sets monetary policies.
I am not quite sure what you mean by versions of fiscal/monetary policies, but I will assume that you are asking about expansionary and contractionary policies. These are the details for both monetary and fiscal policies.
I. Expansionary Fiscal Policy
Expansionary fiscal policy increases government spending or decreases tax rate (or both) to mainly increase an economy's aggregate demand (AD), to ultimately achieve economic growth. In order to help your understanding, this is the equation to calculate aggregate demand: (Consumption) + (Investment) + (Government Spending) + (Export - Import).
By increasing government spending, an economy can directly increase AD as government spending is one of its factor. An increase in AD will result in an extension in aggregate supply (AS), and increase in Real GDP. This allows an economy to experience growth, which may also help to achieve other macroeconomic goals, such as low unemployment rate, even distribution of income, etc.
By decreasing tax rate, consumers' purchasing power increases due to overall lower prices across an economy. This increases consumption, a factor of AD, which indicates an increase in AD. As I mentioned before, increase in AD results in economic growth and other macroeconomic goals.
However, increase in AD through expansionary fiscal policy causes extension in AS, which may result in an increase in average price level (APL), which may cause higher inflation rate.
II. Contractionary Fiscal Policy
Contractionary fiscal policy is basically the opposite of the expansionary fiscal policy. It decreases government spending or increases tax rate (or both) to mainly lower an economy's inflation rate.
For contractionary fiscal policy, the chain of analysis is basically the opposite of expansionary fiscal policy's. This policy ultimately results in a decrease in AD, which allows contraction in AS, lowering APL, lowering inflation rate.
However, opposite to expansionary fiscal policy, contractionary fiscal policy may decrease the rate of economic growth as decrease in AD may cause decrease in RGDP.
III. Expansionary Monetary Policy
As I mentioned before, monetary policies use interest rates and money supply unlike fiscal policies. Expansionary monetary policy has the same target with expansionary fiscal policy, economic growth. It decreases interest rates and increases money supply to do so.
By decreasing interest rates, consumers may have higher incentives to spend money rather than saving those due to low interest rates. Also, increase in money supply means that more money is available and consumers can more easily borrow those money. Both aspects of this policy may result in higher purchasing power for consumers, increasing consumption, a factor of AD. Similarly to expansionary fiscal policy, increase in AD results in an increase in RGDP, resulting economic growth and other macroeconomic goals.
However, as I mentioned before, increase in AD may cause high inflation rate due to increase in APL. In addition, higher supply of money may depreciate/devaluate the country's currency, which may result in lower exchange rate, and more negative side effects.
IV. Contractionary Monetary Policy
Likewise, contractionary monetary policy is the opposite of expansionary monetary policy. It increases interest rates and decreases money supply to mainly reduce inflation.
For contractionary monetary policy, the chain of analysis is basically the opposite of expansionary monetary policy's. This policy restricts the amount of money flowing in an economy, ultimately decreasing AD, contracting AS, lowering APL, and lowering inflation rate.
However, similarly to contractionary fiscal policy, contractionary monetary policy may decrease the rate of economic growth as decrease in AD may cause decrease in RGDP.
As you can see, demand side policies (both fiscal and monetary) can achieve some macroeconomic goals, but also has some side effects.
This answer is quite long, but I hope it appears clear to you. Does this answer your question?
This is the difference between the two policies