Monetary and fiscal tools are used by the government to control economic conditions in the country. Monetary policy usually targets money supply in the market in order to control inflation. In some countries such as Russia and Brazil, governments may often force the mints to print extra currency to meet various expenses. This results in higher flow of money in the market which is unsubstantiated by gold reserves of that country. That leads to inflation and causes several problems due to macroeconomic instability. .

             However when inflation is kept in check, prices stay within consumer's reach, money market remains stable and other areas such as employment, interest rates etc. However while monetary policy is more dependent on market forces and consumer behavior, fiscal policies include governmental spending, taxation and interest rates. We must understand that fiscal measures are normally utilized in capitalist countries when economic conditions are beyond the control of normal market forces and when government intervention is desperately required. In some countries of the world, including Japan, fiscal measures play extremely important role in the economy whereas USA has been somewhat reluctant to make use of fiscal policies. .

             The two important fiscal measures are tax reduction and lower interest rates. When businesses stop producing adequate amount of goods and services, government encourages them by offering attractive incentives mostly in the form of lower interest rates. These rates make borrowing easier and induce producers to invest more in business to increase production level. However the important reason why producers stop producing during tough economic times is because of lack of consumer interest. Consumer spending shrinks dramatically and less is spent on goods and services, which automatically results in lower production. This is a simple demand and supply concept which becomes more pronounced during bad economic times.