...debate of effectiveness of fiscal policy for output and employment under different schools of thought. Fiscal Policy : Fiscal policy is carried out by the governmental and/or the policymaking branches of government. The two main instruments of fiscal policy are government expenditures and taxes. The government collects taxes in order to fund expenses on a number of public goods and services for example, hospitals and national defense. Deficits and Surpluses in the Budget: The budget deficit, which is the difference between government expenditures and tax revenues, is funded by government borrowing; the government issues long‐term, interest‐bearing bonds and uses the proceeds to finance the deficit. The total store of government bonds and interest payments outstanding, from both the present and the past, is known as the national debt. Thus, when the government finances a deficit by borrowing, it is adding to the national debt. When government expenditures are less than tax revenues in a given year, the government is running a budget surplus for that year. The budget surplus is the difference between tax revenues and government expenditures. The revenues from the budget surplus are typically used to reduce any existing national debt. In the case where government expenditures are exactly equal to tax revenues in a given year, the government is running a balanced budget for that year. Expansionary and contractionary fiscal policy: Expansionary fiscal policy is defined...
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...Discuss the difference between Keynesians and monetarists over the effectiveness of fiscal and monetary policy in the IS-LM framework. Introduction In economics there are two main schools of thought; these schools differ in their belief of what policies are best suited to attain full employment in the economy. Keynesians tend to favour demand side policies and are more prone to intervene in the market and therefore prefer to use fiscal policy whilst monetarists believe adjustments in money supply is more appropriate in stabilising the market ,therefore preferring monetary policy. In this essay I will discuss the views of Keynesians and monetarists regarding the effectiveness of monetary and fiscal policies in controlling aggregate demand through the IS-LM framework. I will first provide a brief description of the curves explaining their formation and what they represent and then I will go on to examine monetary and fiscal policy within the IS-LM framework. Finally, I will examine the views of monetarist and Keynesians regarding the effectiveness of both policies in raising the level of national l income and also consider the extreme cases. IS-LM framework The IS-LM model was initially developed by John Hicks in 1937 but was made popular in 1949 by Hansen in order ‘to provide a framework for analyzing the factors determining the level of aggregate demand’. The IS-LM model is a short run model of the determination of output. It shows the unique combination of income...
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...Effectiveness of Fiscal Policy under Both Fixed and Floating Exchange Rates using IS-LM-BP Model In order to examine the degree in which fiscal policy can be used effectively in this model, the variables that directly influence the outcomes of its use need to be identified. These are, exchange rate regime whether fixed of flexible that is in place and the degree that capital is mobile. The level of capital mobility is how challenging or simple it is for private individuals or firms to move funds across borders. Exchange rate regimes fall into two categories fixed and flexible, flexible exchange rate means that it is determine by supply and demand factors of said currency. In a fixed exchange rate scheme the value of the domestic exchange rate is fixed to a certain level, often to another currencies price or other commodity this can make trade between the given economy easier. Here is 8 combinations of fixed and flexible exchange rate and levels of capital mobility and how the outcomes show the effectiveness or ineffectiveness of the fiscal policy expansion policy implementation. Fiscal Expansionary Policy within a Flexible Exchange Rate Scheme with Somewhat Mobile Capital The mobility of the capital can be determine by the steepness off the BP curve, the steeper the curve the more mobile the capital as it is in this case. The expansionary policy is implemented and shifts the IS curve from IS1 to IS2 moving the equilibrium point from A to B, this leads to an overall deterioration...
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...Bangladesh began implementing structural policy reforms to increase the market orientation of its economy in the late 1970s. The authorities adopted significant reforms in agriculture, industry, and trade, and also pursued reforms in the financial and infrastructure sectors. These reforms helped accelerate growth from an annual average of 3 percent in the 1970s to 4 percent in the 1980s and to 5 percent in the 1990s. Sound and sustained macroeconomic management ensured macroeconomic stability, contributing to Bangladesh’s ability to maintain one of the lowest growth volatilities in the world. Major Policy Reforms Contributed to Growth Acceleration: * Agricultural policy * Industrial policy * Trade policy * Infrastructure policy * Financial policy * Macroeconomic policies * Human Development policies Macroeconomic policies Following the initial debacle of the 1972–75 periods, Bangladesh was able to maintain a broad degree of stability of macroeconomic policies, as reflected in relatively low inflation and a stable real exchange rate. Fiscal, monetary and exchange rate management was broadly on track for most of the period until around the end of the 1990s. This long-term good macroeconomic management served Bangladesh well, contributing to incentives for private investment and exports. Inflation has now been reduced to 3–4 percent annually (Chart 7). The correction of the macroeconomic imbalances started in the late 1970s and continued...
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...RBI'S MONETARY POLICY INITIATIVES SINCE 2008-09 AND ITS EFFECTIVENESS IN CONTAINING INFLATION PROJECT OF MACROECONOMICS ON “RBI’S MONETARY POLICY INITIATIVES SINCE 2008-09 AND ITS EFFECTIVENESS IN CONTAINING INFLATION” SUBMITTED BY ARPIT PANGASA (11DM032) GUNJAN GODWANI (11DM052) RIDHI PRASAD (11DM122) UNDER THE GUIDANCE OF PROF. JAGDISH SHETTIGAR BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY, GREATER NOIDA RBI'S MONETARY POLICY INITIATIVES SINCE 2008-09 AND ITS EFFECTIVENESS IN CONTAINING INFLATION RESERVE BANK OF INDIA It is the central banking institution of India and controls the monetary policy of the rupee. The institution was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934. Reserve Bank of India plays an important part in the development strategy of the government. It is a member bank of the Asian Clearing Union. Reserve Bank of India was nationalised in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist...
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...EC3010 - Economic Policy Assignment 1 The nature of the ongoing financial crisis merely confirms what Economists have known for some time, namely, that the interconnectedness of global economic activity renders macro-management by single governments redundant. Their function is now to regulate markets to ensure economically efficient solutions. Module Leader :Paul McKeown Student Name: Chen JiaHui Student number: G20555142 1.0 Introduction This report argues that the ongoing financial crisis merely confirms the global political consideration what economists have known for some time. Firstly, it briefly explains how the financial crisis spread around the world in such a short time by globalisation. This report points out that the global financial system is inherently flawed, showing how economies go from stability to instability. Subsequently, it focuses on the link between economic globalisation and macro-management by single government, considering whether Macro-management of a country’s economy is redundant, given the global interconnectedness economy’s activity and business. This report shows government policy has reduced the effectiveness of interconnected economies, such as fiscal policy and monetary policy. After that, it emphasizes that it is imperative for governments to regulate financial markets so as to ensure economically efficient solutions. Consequently, this report concludes that although macro-management by single government is less effective...
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...Evaluate the effectiveness of the current government’s fiscal stance in achieving sustained levels of economic growth in the economy. The government’s fiscal stance has been effective in achieving sustained levels of economic growth in the economy through countering the impact of the Global Financial Crisis (GFC) and remaining globally competitive. The fiscal policy is a macroeconomic policy that influences resource allocation, redistributes income and plays an essential counter cyclic role to the business cycle through government spending, taxation and the budget outcome. This is achieved through manipulating government expenditure and tax collection in the Commonwealth Government’s annual budget which alters the level of economic activity...
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...bailouts around the world since 2008 has led to the European sovereign debt crisis. The purpose of this essay is to analyse the effectiveness of several economic policies which can be used to solve this crisis. The essay looks at the effectiveness of fiscal austerity which has already been implemented by some European countries, then look at whether there is room for monetary policy, lastly looks at whether there is room for further policy recommendations. The European sovereign debt crisis refers to the collapse of several financial institutions in certain European countries which form part of the European Union, high government debt in these European countries as well as rapidly increasing bond yield spreads in government securities has caused a sovereign debt crisis. This on-going financial crisis, which began in 2008, has made it very difficult or even impossible for some country’s governments in Europe to pay back their debt without the assistance of third parties which then further increases their debt (Times, 2012). Economists have thought long and hard about ways in which they can improve and in essence solve the European debt crisis. One way of doing so is through fiscal policy, which refers to government spending and taxation. A fiscal consolidation, which is a term typically used to discuss government economic policy, refers to a policy which is implemented with the intention of decreasing government deficits and decreasing the accumulation of government debt (W...
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...1. Critically examine the effectiveness of various approaches that may be used to reduce macroeconomic instability. According to Mc Vaish (Macroeconomics theory, p123) Macroeconomics can be defined as the analysis of the economy wide aggregates such as the analysis of the total output and employment, total consumption, total investment, total saving and national product. Macroeconomic theory employs technique of general equilibrium in order to study the determination of the general price level, money supply, total employment and output levels and fluctuations in these aggregates magnitudes. A macroeconomic stable environment can be defined as one in which inflation is low and predictable, the exchange rate is near its equilibrium level, the government budget is well managed, the budget deficit relative to GDP is at a reasonable level and the use of central bank credit to finance the budget deficit is kept at a minimal level. Macroeconomic stability sends important signals to the private sector about the direction of economic policies and the credibility of authorities’ commitment to manage the economy efficiently. Such stability, by facilitating long term planning and investment decisions, encourages savings and capital accumulation by the private sector. Macroeconomic instability takes place in two forms namely exogenous shocks and inappropriate policies. Exogenous shocks (such as reversal capital flows, terms of trade and natural disasters) require compensatory action...
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...Question 1 Introduction In economics there are two main schools of thought; these schools differ in their belief of what policies are best suited to attain full employment in the economy. Keynesians tend to favour demand side policies and are more prone to intervene in the market and therefore prefer to use fiscal policy whilst monetarists believe adjustments in money supply is more appropriate in stabilising the market ,therefore preferring monetary policy. In this question I will discuss the views of Keynesians and monetarists regarding the effectiveness of monetary and fiscal policies in controlling aggregate demand through the IS-LM framework. I will first provide a brief description of the curves explaining their formation and what they represent and then I will go on to examine monetary and fiscal policy within the IS-LM framework. Finally, I will examine the views of monetarist and Keynesians regarding the effectiveness of both policies in raising the level of national l income and also consider the extreme cases. The IS-LM model was initially developed by John Hicks in 1937 but was made popular in 1949 by Hansen in order ‘to provide a framework for analysing the factors determining the level of aggregate demand’. The IS-LM model is a short run model of the determination of output. It shows the unique combination of income and interest rates that lead to an equilibrium in both the goods and money market at the same time (Begg, 2008). The IS-LM model is presented...
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...the paper: With giving an overview of what the monetary policy really is and narrating how the central bank formulates the monetary policies and takes the necessary steps for its implementation in Bangladesh, this paper targets to analyze the impact of monetary policy on the inflationary situation. Methodology: The study depends on I. Extensive literature review of external sources on central banks on formulation and implementation ofmonetary policy for the country II. Publications of Bangladesh Bank Scope of the paper: 1. First of all, monetary policy is a deep sea to swim through. Though Bangladesh practices and implements a limited number of instruments, the mix is always complex to grab the main idea behind it. Extensive analysis of the mix is beyond the scope of the paper. 2. Framing of indices of central bank policies is beyond the limit of this paper. 3. Structured data is hard to collect from the departments of Bangladesh Bank, so complex calculations and data analysis is deliberately avoided. Bangladesh Bank (BB): The central bank of the country, was established as a corporate body by the Bangladesh Bank Order, 1972 (P.O. No. 127 of 1972) with effect from 16 December, 1971 by acquiring the liabilities and assets of erstwhile State bank of Pakistan in East Pakistan. Bangladesh Bank is the central bank of the country | | There is a cross departmental committee on monetary policy (MPD) headed by a deputy governor, which includes the officials...
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...AS MACRO REVISION Indicators of Macroeconomic Performance: The performance of the UK economy is often compared to the performance of other countries' economies. There are four key indicators that are used when comparing economic performance: 1. Economic Growth 2. Unemployment 3. Balance of Payments 4. Inflation Economic Growth: Economic growth is defined as 'an increase in the productive capacity of an economy'. This is shown on The Production Possibility Frontier (PPF) below: There are a number of different causes of economic growth - Improving quantity and quality of labour will cause economic growth: * A decrease in income tax encourages the unemployed to find work and increases the quantity of the work force. * Inward migration results in more skilled workers within the country and with better labour available efficiency will increase. * Technological advancements will mean that the quality and efficiency of capital used by firms will increase and therefore productivity will rise. The Economic Cycle All countries at every stage of their economic development experience periodic business cycles where the rate of growth of production (real GDP), incomes and spending fluctuates. The length and volatility of each cycle varies over time. There are booms: * Higher consumption * More houses built * Imports rise and exceeds rise in exports (deterioration) * Lower unemployment * Rise in AD * Higher tax revenue for govt There...
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...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 is helpful to know the underlying intent of the decisions and the separate functions of monetary and fiscal policy. Before the 1930s...
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...The Monetary & Fiscal Policies in Support of Economic Transformation and Inclusive Growth in Nigeria Abubakar M. G 1. Department of Economics, Umaru Musa Yar’adua University, Katsina 2. Central Bank of Nigeria, Katsina. Phone: 08032838408 and 08023563415 Central BanEmail: gazayks@yahoo.com and magarzali@cenbank.org 1.1 Abstract There is a plethora of literature on Monetary/Fiscal Policies - economic development nexus. This has prompted renewed interest in inclusive Growth. This probably explains why governments and policy makers are now tinkering with ways to situate and develop a permanent solution to the widened gap in broad range of financial services which of course are necessary for inclusive growth. Financial inclusion otherwise known as “inclusive growth” can be seen as the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society. Due to incessant desire to incorporate disadvantaged segment of the society into financial net, both monetary and fiscal authorities have embarked upon a robust strategy toward addressing the gap. The former (monetary authority) had set out a visible road map necessary for direct effect on savings, investment, rate of interest, pension and general form of financial services. While the later (fiscal authority) have been making a remarkable effort toward achieving sustained economic growth especially in rural areas, this would translate accelerated and friendly society necessary...
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...Traffic in the City of Kelsey Vernon Colbourne ACC 574 George Holbrook June 22, 2015 The City of Kelsey’s mayor has identified a need to increase funding for the city highways. The reason for this request is the traffic issues the city has seen in the past couple of years. Those traffic issues are road congestion and traffic accidents. This change ultimately affects the City of Kelsey current budget fiscal cycle. The mayor deemed it appropriate to get the city’s budget director involved. The focus of the fiscal budget should be on how additional funds can be added to the fiscal year budget. The most likely revenue source for additional funding will come from the increase in gas taxes. The budget director will have to focus their attention on how well the citizens will respond to the tax increase. The budget director needs to set goals for the budget. Once the goals are set, the city’s budget director meets with the City of Kelsey officials to discuss current and future city policies (Apollo Group, Inc, 2011). Gas Tax Increase The city’s gas tax is at a current rate of 5 cents per gallon (Apollo Group, Inc, 2011). If the proposed budget is approved, the current gas tax will increase to a staggering 20 cents. The budget director understands this will be a hard one for citizens to swallow. Therefore, other areas of the budget may be compromised as well. One option is requesting a lower tax increase because the City of...
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