The State possesses various measures that are used to shape and direct the economy. Amongst those, the most important policy is the one which contains the relationship of governing with the means of control over economic cycles. The most effective policies are the fiscal and monetary policy that are essential instruments of stability and sustainability of the economy. This paper will focus on the influence and effect of these policies, their development throughout history, the periodical change of emphasis between monetary and fiscal policies, which conditions are better suited for the implementation of those policies and other similar topics. Development of states and the expansion of the economy necessitated the formalization of rules and principles of enforcing the monetary and fiscal policies. Due to the unpredictability of the market and various outside influences on the economy, the means of application of these policies were implemented that combined various features of these two policies, and those implementations differed according to the historical period and governmental makeup of the states implementing the policies. A good example would be the Keynesian, economy of supply and classical approach to economic cycle management. Keynesian approach and the economy of supply place greater importance on fiscal policy, while the monetary policy was used as supplement to fiscal policy in order to meet short term goals. On the other hand, the classical approach to economic cycle management places greater importance on monetary policies, therefore sustaining the economy by regulating the amount of currency in the system. The creation of European Union and European Monetary Union formalized the blueprint that applies to all members of the EU and EMU. The states that are members of EMU accept the common monetary policy that is implemented by the Central Bank. Therefore, the member states of EMU no longer have the option of creating and implementing its own monetary policy, and are obligated to implement the common one. On the other hand, the responsibilities of fiscal policy were delegated on EU level (which is a precondition of applying for membership in the EU) and the sovereign state policy.