Fiscal and Monetary Policy

Fiscal policy is an economic policy aimed at directing the economic conditions get better by changing the revenue and government expenditure. Fiscal policy is focus in setting revenue and government spending. While the Monetary Policy is an attempt to control the macro economy by the government through setting the amount of money circulating in the economy. The effort made to maintain price stability and inflation and the increase in output balance.
Setting the amount of money circulating in communities governed by way of increase or decrease the amount of money in circulation. Monetary policy can be classified into two, namely:
1. Expansive Monetary Policy / Monetary Policy expansive
It is a policy in order to increase the amount of money in circulation.
2. Contractionary monetary policy / Contractive Monetary Policy
It is a policy in order to reduce the amount of money circulation. Called also with tight monetary policy (tight money policy).
Instruments of fiscal policy are government revenues and expenditures are closely related to the tax. In the approach, the IS and LM curves are tax leakage and the increase will reduce aggregate expenditures. If the government collected tax increases, disposebel income, consumption and household savings will be reduced. Fiscal and monetary policy in the macro economy can be analyzed by using the approach of the IS and LM curves.
The IS curve is a curve that describes the balance of national income at various levels. Whereas LM curve is a curve that shows the relationship between the interest rate that is realized by the balance between demand and supply of money to national income which the balance is achieved. Therefore, any changes in tax rates will affect the economy. If the tax reduced the ability of purchasing power will increase and the industry will be able to increase the amount of output. And vice versa tax increases will reduce consumer spending and lower industrial output in general. these changes can be described based on the IS and LM curves please be downloaded here for Indonesian language, and for password please download here.