<Table> <Tr> <Td> </Td> <Td> This article needs additional citations for verification . Please help improve this article by adding citations to reliable sources . Unsourced material may be challenged and removed . (November 2011) (Learn how and when to remove this template message) </Td> </Tr> </Table> <Tr> <Td> </Td> <Td> This article needs additional citations for verification . Please help improve this article by adding citations to reliable sources . Unsourced material may be challenged and removed . (November 2011) (Learn how and when to remove this template message) </Td> </Tr> <P> Fiscal policy and monetary policy are the two tools used by the state to achieve its macroeconomic objectives . While for many countries the main objective of fiscal policy is to increase the aggregate output of the economy, the main objective of the monetary policies is to control the interest and inflation rates . The IS / LM model is one of the models used to depict the effect of policy interactions on aggregate output and interest rates . The fiscal policies have a direct impact on the goods market and the monetary policies have a direct impact on the asset markets; since the two markets are connected to each other via the two macrovariables output and interest rates, the policies interact while influencing output and interest rates . </P> <P> Traditionally, both the policy instruments were under the control of the national governments . Thus traditional analyses were made with respect to the two policy instruments to obtain the optimum policy mix of the two to achieve macroeconomic goals, lest the two policy tools be aimed at mutually inconsistent targets . But more recently, owing to the transfer of control with respect to monetary policy formulation to central banks, formation of monetary unions (like European Monetary Union formed via the Stability and Growth Pact), and attempts being made to form fiscal unions, there has been a significant structural change in the way in which fiscal and monetary policies interact . </P>

How do fiscal and monetary policy work together
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