...Economic and Monetary Policy Brenda Roper Dr. Jones Olajide Auditing and Business Concepts February 21, 2016 Economic and Monetary Policy: Sweden and the USA The monetary and economic policies of a country influence its economic growth through internal and external investment. Reforms in these policies have been the norm of many countries globally with the aim of attracting investors in the highly globalized international community (Alexander & Thomas, 2013). As transport and technology continues to increase opportunities to trade with multiple countries, it is becoming necessary for countries to attract as many external investors as possible to bring new advantages that can boost the economy. This paper will attempt to review the economic and monetary policies of the United States and Sweden. These countries were among the best ten economies in the world in 2013 and continue to strive to retain the top positions among the world economies. Question One Sweden has over the recent years emerged as the model economy in the world through its commitment to reforms that increase its efficiency in economic development. Although the country fell from the third position in 2011 to position six in 2013 in terms of competitiveness index (Scott, 2015), it has continued to retain its position in technological readiness. Compared to other nations in terms of incorporation of existing technologies in all forms of economic activities, Swedish companies are far ahead of others...
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...MONETARY POLICY WHAT IS MONETARY POLICY? Policy to control the supply of money in the country Targeting a rate of interest to attain objective of growth and stability of the economy. TYPES OF MONETARY POLICIES Expansionary • Increases the total supply of the money in the economy • Used to combat unemployment in a recession by lowering interest rates TYPES OF MONETARY POLICIES Contractionary • Decreases the total supply of the money in the economy • Used to combat inflation by raising interest rates TOOLS OF MONETARY POLICY IN INDIA Cash Reserve Ratio (CRR) Statutory Liquidity Ratio (SLR) Repo and Reverse Repo Rate CASH RESERVE RATIO (CRR) • Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank • RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from time to time. STATUTORY LIQUIDITY RATIO (SLR) • SLR is the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. REPO AND REVERSE REPO RATE REPO RATE • It is the rate at which the RBI lends shot-term money to the banks. When the repo rate increases borrowing from RBI becomes more expensive. REVERSE REPO RATE • It is the rate at which banks park their short-term excess liquidity with the RBI. The RBI uses this tool when it feels there is too much money...
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...In a free market society where firms and households shape the economy, government intervention can significantly contribute to economic stability and improve current economic outcomes. The successful use of government policy tools is evident through an examination of environmental economics, monetary policy and the labour market. With regards to the environment and the labour market, the government have made use of taxes, permit trading systems, general regulations and transfer payments to influence economic outcomes in each of these respective fields. By studying monetary policy it is also apparent that control over the interest rate mechanism is another effective tool used by policymakers to enhance the present and future economic circumstances of a nation. As society continues to expand, the quality of the environment is beginning to deteriorate. Governments to prevent this from occurring and to avoid market inefficiency, can help the economy through policy tools such as enforcing taxes and regulating pollution permit trading systems. As shown in Figure 1 below, market equilibrium (Me) on its own is inefficient because it does not take into consideration the negative externalities that arise during production and does not account for a lack of incentive by firms to incorporate additional production costs. The implications of market failure will mean that a society will not be allocative efficient and as a result output will be greater than it what it should be (Q0 instead...
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... U.S. Economic Situation When it comes to explaining The Fiscal and Monetary Policy and Economic Fluctuations, there are many variables to take into account. Looking at how the United States has been on this long recovery since the recession starting in 2007 all the way up to this point, the economic situation has gone from bad to ok. In discussing the economic situation as opposed to 5 years ago, one could truly argue that even though the situation was not the best to say the least, the United States is looking better and better when it comes to the economy. In October 2009 the unemployment rate in America was 10 percent, or that was the peak of it. It had not been that bad in America since late 1982, early 1983. In July 2009 the number of job openings declined to a series low of 2.1 million, unemployment reached a recent low of 129 million in February 2010. By 2012 it had increased to over 132 million and seemed to be rising, little did anyone know that things would soon take a turn for the better. Economists were predicting outrageous numbers for the next few years before things would even begin to get better, and they too were wrong in that prediction. Business cycles differ from economic fluctuations. As much as some market observers would prefer, economic fluctuation is a fact of life. Economic fluctuations are generated by shifts in specific economic data that affect limited facets of the economic picture. (http://www.ehow.com/info_10032315_main-economic-variables-affect-business-cycle...
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...on inflation and unemployment and a steady rate of economic growth along with a current account stability. Fiscal policy involves the use of government spending and tax receipts to influence the level and pattern of economic activity, whilst monetary policy uses interest rates to achieve the same. Fiscal and monetary policy can be used to influence short term Aggregate Demand with the aim of promoting a steady rate of economic growth, low unemployment and low inflation. In a recession there will be a loosening of monetary policy when interest rates are cut and a budget deficit run with the aim of boosting Aggregate Demand throughout the economy. This is what is happening at the moment in the UK as the economy slowly comes of out recession. Interest rates are down to 0.5% and income tax rates are slowly being cut to act as an incentive to workers to work harder and boost productivity. However, as we see in the UK economy these policies are having a very slow impact on growth. Consumer confidence and business confidence is very low and when this happens cuts in interest rates and taxes will not encourage household and consumers to spend more. They may be tempted to use the extra money to save more and pay off debt rather than spend and this could hinder economic recovery. Inflation in the UK economy was very low between 1992 and 2008 and this allowed interest rates to fall to a low level which helped boost economic growth and living standards in the economy. Now with...
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...DOES MONETARY POLICY INFLUENCE ECONOMIC GROWTH IN PAKISTAN? Haji Saif Ullah (Author) Email: hajisaif@live.com Muhammad Ashraf (coordinator) Department of Management Sciences University Of Gujrat, Gujrat ABSTRACT This study examines the impact of monetary policy on economic growth in Pakistan. The study uses time-series data covering the range of 1991 to 2011.The effects of stochastic shocks of each of the endogenous variables are explored using Error Correction Model (ECM). The study shows that Long run relationship exists among the variables. Also, the core finding of this study shows that inflation rate, exchange rate and external reserve are significant monetary policy instruments that drive growth in Pakistan. It is therefore recommended that the establishment of primary and secondary government bond markets that can also increase the efficiency of monetary policy and reduce the government’s need to rely on the central bank for direct financing. Keywords: Policy instruments, Economic Growth, GDP, Money supply, monetary policy INTRODUCTION The aim of this study is to examine the impact of monetary policy on economic growth. Economic growth is an important macroeconomic objective for any country. Monetary policy has direct relation with economic growth. Folawewo and Osinubi (2006) stated monetary policy as the arrangements which are planned to control supply of money in a country. In many countries the basic aims of the monetary policy are to stabilize prices...
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...Assignment on Monetary Policy in Bangladesh INTRODUCTION: Monetary Policy the policy adopted by the central bank for control of the supply of money as an instrument for achieving the objectives of general economic policy .With the shifts of the policy stance of the government in various phases, necessary adjustments were made in the country's monetary policy. The Department of Research in the Bangladesh Bank plays an important role in the formulation of economic policies of the country. The principal function of the Department is to help the bank in the formulation of monetary and credit policies and also to assist it in discharging its duty as adviser to the Government on economic and financial matters. To this end, the department keeps the top executives of the bank fully informed of latest economic development both at home and abroad, in a regular and systematic manner. For this purpose the Department keeps a close watch on trends in the domestic economy as well as on international economic developments with particular reference to monetary, fiscal land trade problems and policies. Domestic and international economic developments are brought within the compass of comprehensive reports and reviews which are submitted for perusal of theGovernor, Deputy Governor, and Senior Executives of the bank, as also the bank’s Board of Directors. Definition of Monetary Policy: Monetary policy is the term used by economists to describe ways of managing the supply of money in an...
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...------------------------------------------------- The Monetary Policy of Bangladesh Introduction The policy adopted by the central bank for control of the supply of money as an instrument for achieving the objectives of general economic policy. With the shifts of the policy stance of the government in various phases, necessary adjustments were made in the country's monetary policy. The principal function of the Department is to help the bank in the formulation of monetary and credit policies and also to assist it in discharging its duty as adviser to the Government on economic and financial matters. To this end, the department keeps the top executives of the bank fully informed of latest economic development both at home and abroad, in a regular and systematic manner. For this purpose the Department keeps a close watch on trends in the domestic economy as well as on international economic developments with particular reference to monetary, fiscal and trade problems and policies. Domestic and international economic developments are brought within the compass of comprehensive reports and reviews which are submitted for perusal of the Governor, Deputy Governor, and Senior Executives of the bank, as also the bank’s Board of Directors. Monetary Policy Monetary policy is the term used by economists to describe ways of managing the supply of money in an economy. Monetary Policy is the management of money supply and interest rates by central bank to influence...
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...investigates the effects of Monetary policy on some significant economic variables like exchange rate, gross domestic product and inflation using data from 1960-2010 to analyze the results. We have taken the data in percentage form. A great number of empirical studies on the relationships of monetary policy and inflation are available and most of these have analyzed the effectiveness of monetary policy in controlling inflation in Pakistan. In this paper we have presented the effectiveness of monetary policy it’s framework and data estimation through which we reached to the conclusion that monetary shocks do affect real variables like GDP, inflation and exchange rate. Pakistan has been estimated by a number of researchers and it has been recognized that monetary phenomenon are responsible for the high levels of inflation. Keywords: Monetary Policy, Inflation, Exchange rate, Economic Growth, Gross domestic product and Pakistan. Introduction This paper attempts to examine the long-run effects of Monetary Policy on several economic variables such as inflation, economic growth that is gross domestic product and exchange rate in Pakistan. For this purpose, analysis have been employed for the period 1960-2010. As monetary policy actions affect policy variables with a significant gap and with high degree of unpredictability and insecurity, it is key to predict the probable impact and degree of monetary policy actions on the real variables. Usually, policy makers and central banks...
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...On “Monetary Policy of Bangladesh” Course Code: Course Title: Macro Economics Submitted to: Submitted by: Date of submission: 15 August, 2012 Table of Contents |Titles |Page Number | |Table of Contents |02 | |Introduction |03 | |Definition of Monetary policy |03 | |Importance of Monetary Policy |03 | |Type of Monetary Policy |04 | |Tools to implement the monetary policy |04 | |Bodies of Monetary Policy |05 | |Monetary Policy in Bangladesh |05 | |Instruments of Monetary policy in BD...
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...of the term paper Monetary Policy Reason of publishing 04 Types of Monetary Policy 05 Monetary Policy in Bangladesh 06 Tools & Strategy of Monetary Policy 06 Major tools used by Bangladesh Bank 07 Policy Target 12 Limitations of Monetary Policy 13 Findings of the study Chapter-03 03 Scope & Objective of Monetary Policy Chapter- 02 03 14 Conclusion 14 Bibliography 14 Chapter- 01 Introduction “Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy. It is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat unemployment in a recession by loIring interest rates in the hope that easy credit will entice businesses into expanding. Contractionary policy is intended to slow inflation in hopes of avoiding the resulting distortions and deterioration of asset values. In this report I tried to show that how monetary policy is related to the economy...
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...Liber8 TM Brought to You by the Research Library of the Federal Reserve Bank of St. Louis Economic Information Newsletter Monetary and Fiscal Policy in Times of Crisis March 2011 Classroom Edition An informative and accessible economic essay with a classroom application. Includes the full version of the Liber8 Newsletter, plus questions for students and an answer key for classroom use. Prepared by the Economic Education Group of the Federal Reserve Bank of St. Louis © 2011, Federal Reserve Bank of St. Louis. www.stlouisfed.org/education Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes, so long as this copyright notice is included on all copies. Liber8 ® Brought to You by the Research Library of the Federal Reserve Bank of St. Louis Economic Information Newsletter Fiscal and Monetary Policy in Times of Crisis March 2011 “We [policymakers] have been bold or deliberate as circumstances demanded, but our objective remains constant: to restore a more stable economic and financial environment in which opportunity can again flourish.” —Federal Reserve Chairman Ben S. Bernanke, August 25, 2009 The recent financial crisis and recession prompted unconventional and aggressive actions by monetary and fiscal policymakers. Monetary policymakers turned to quantitative easing. Fiscal policymakers increased government spending and reduced taxes. To better understand these widely debated actions, it...
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...Assignment On The Role of Monetary Policy: Bangladesh Perspective * Introduction 3 * Impotance of Monetary Rule 3 * Objectives of Monetary Policy 5 * Functions of Monetary Policy 5 * Economic Growth 6 * Bangladesh Monetary Policy 7 * Note Issuing Processes 7 * The Broad Discussion of Monetary Policy Objective 9 * Strategy of Monetary Policy 11 * Conclusion 13 INTRODUCTION: Monetary Policythe policy adopted by the central bank for control of the supply of money as an instrument for achieving the objectives of general economic policy. With the shifts of the policy stance of the government in various phases, necessary adjustments were made in the country's monetary policy. The Department of Research in the Bangladesh Bank plays an important role in the formulation of economic policies of the country. The principal function of the Department is to help the bank in the formulation of monetary and credit policies and also to assist it in discharging its duty as adviser to the Government on economic and financial matters. To this end, the department keeps the top executives of the bank fully informed of latest economic development both at home and abroad, in a regular and systematic manner. For this purpose the Department keeps a close watch on trends in the domestic economy as well as on international economic developments with particular reference to monetary, fiscal and trade problems...
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...The Impact of Monetary Policy on Economic Growth and Inflation in Sri Lanka C.Amarasekara 1 Abstract Based on a vector autoregressive (VAR) framework and utilising both recursive and structural specifications, this study analyses the effects of interest rate, money growth and the movements in nominal exchange rate on real GDP growth and inflation in Sri Lanka for the period from 1978 to 2005. The results of the recursive VARs are broadly in line with the established empirical findings, especially when the interest rate is considered the monetary policy variable. Following a positive innovation in interest rate, GDP growth and inflation decrease while the exchange rate appreciates. When money growth and exchange rate are used as policy indicators, the impact on GDP growth contrasts with established findings. However, as expected, an exchange rate appreciation has an immediate impact on the reduction of inflation. Interest rate innovations are persistent, supporting the view that the monetary authority adjusts interest rates gradually, while innovations in money growth and exchange rate appreciation are not persistent. Several puzzling results emerge from the study: for most sub-samples, inflation does not decline following a contractionary policy shock; innovations to money growth raises the interest rate; when inflation does respond, it reacts to monetary innovations faster than GDP growth does; and exchange rate appreciations almost always lead to an increase in GDP growth. The...
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...Monetary Policy ECON 201 Roger Capretta 5 October 2012 Governments use monetary policy as a tool to influence their economy. Usually, government will find a way to influence the economic activity in connection with their political objectives by using their monetary authority to control the availability and supply of cash flow throughout the economy. Their main goal is to achieve macroeconomic stability by enabling low unemployment, low inflation, economic growth and a balance of external payments. A Central Bank is usually appointed to administer an economy’s monetary policy. The main goal of monetary policy is to promote solid economic performance and higher living standard amongst the public within the economy. Low, stable, and predictable inflation is a great way to judge how an economy’s functioning. There are three objectives to monetary policy. They are price stability, maintenance of full employment and also economic activity and welfare of people within an economy. Price stability is directly related to the price level of goods or services. This price can directly affect the economic growth based upon if it is high or low. This can also lead to full employment. When good and services are selling, companies have the ability to hire more employees which raises the employment level. When money is flowing through an economy and people are working and not unemployed the economic activity is high which will lead to economic prosperity. The Federal Reserve plays...
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