Fiscal policy involves changing government spending and taxation. It involves a shift in the governments budget position. e.g. Expansionary fiscal policy involves tax cuts, higher government spending and a bigger budget deficit. Government spending is a component of AD.
Monetary policy involves influencing the demand and supply of money, primarily through the use of interest rates.
Monetary policy can also involve unorthodox policies such as open market operations and quantitative easing.
Monetary policy is usually carried out by an independent Central Bank^
