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Both fiscal and monetary policy can affect real GDP, due to time-lag in wage and price adjustments. In general, however, fiscal policy has a much more direct effect on real GDP.
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Expansionary fiscal policy is so named because it?
Expansionary fiscal policy is so named because it is designed to expand real GDP.
What is a main goal of the Federal Reserve in its monetary policy?
Meaning of Monetary PolicyThe term monetary policy is also known as the 'credit policy' or called 'RBI's money management policy' in India. How much should be the supply of money in the economy? How much should be the ratio of interest? How much should be the viability of money? etc. Such questions are considered in the monetary policy. From the name itself it is understood that it is related to the demand and the supply of money. Definition of Monetary PolicyMany economists have given various definitions of monetary policy. Some prominent definitions are as follows.According to Prof. Harry Johnson,"A policy employing the central banks control of the supply of money as an instrument for achieving the objectives of general economic policy is a monetary policy."According to A.G. Hart,"A policy which influences the public stock of money substitute of public demand for such assets of both that is policy which influences public liquidity position is known as a monetary policy."From both these definitions, it is clear that a monetary policy is related to the availability and cost of money supply in the economy in order to attain certain broad objectives. The Central Bank of a nation keeps control on the supply of money to attain the objectives of its monetary policy.Objectives of Monetary PolicyThe objectives of a monetary policy in India are similar to the objectives of its five year plans. In a nutshell planning in India aims at growth, stability and social justice. After the Keynesian revolution in economics, many people accepted significance of monetary policy in attaining following objectives.1. Rapid Economic Growth2. Price Stability3. Exchange Rate Stability4. Balance of Payments (BOP) Equilibrium5. Full Employment6. Neutrality of Money7. Equal Income DistributionThese are the general objectives which every central bank of a nation tries to attain by employing certain tools (Instruments) of a monetary policy. In India, the RBI has always aimed at the controlled expansion of bank credit and money supply, with special attention to the seasonal needs of a credit.Let us now see objectives of monetary policy in detail :-1. Rapid Economic Growth : It is the most important objective of a monetary policy. The monetary policy can influence economic growth by controlling real interest rate and its resultant impact on the investment. If the RBI opts for a cheap or easy credit policy by reducing interest rates, the investment level in the economy can be encouraged. This increased investment can speed up economic growth. Faster economic growth is possible if the monetary policy succeeds in maintaining income and price stability.2. Price Stability : All the economics suffer from inflation and deflation. It can also be called as Price Instability. Both inflation are harmful to the economy. Thus, the monetary policy having an objective of price stability tries to keep the value of money stable. It helps in reducing the income and wealth inequalities. When the economy suffers from recession the monetary policy should be an 'easy money policy' but when there is inflationary situation there should be a 'dear money policy'.3. Exchange Rate Stability : Exchange rate is the price of a home currency expressed in terms of any foreign currency. If this exchange rate is very volatile leading to frequent ups and downs in the exchange rate, the international community might lose confidence in our economy. The monetary policy aims at maintaining the relative stability in the exchange rate. The RBI by altering the foreign exchange reserves tries to influence the demand for foreign exchange and tries to maintain the exchange rate stability.4. Balance of Payments (BOP) Equilibrium : Many developing countries like India suffers from the Disequilibrium in the BOP. The Reserve Bank of India through its monetary policy tries to maintain equilibrium in the balance of payments. The BOP has two aspects i.e. the 'BOP Surplus' and the 'BOP Deficit'. The former reflects an excess money supply in the domestic economy, while the later stands for stringency of money. If the monetary policy succeeds in maintaining monetary equilibrium, then the BOP equilibrium can be achieved.5. Full Employment : The concept of full employment was much discussed after Keynes's publication of the "General Theory" in 1936. It refers to absence of involuntary unemployment. In simple words 'Full Employment' stands for a situation in which everybody who wants jobs get jobs. However it does not mean that there is a Zero unemployment. In that senses the full employment is never full. Monetary policy can be used for achieving full employment. If the monetary policy is expansionary then credit supply can be encouraged. It could help in creating more jobs in different sector of the economy.6. Neutrality of Money : Economist such as Wicksted, Robertson have always considered money as a passive factor. According to them, money should play only a role of medium of exchange and not more than that. Therefore, the monetary policy should regulate the supply of money. The change in money supply creates monetary disequilibrium. Thus monetary policy has to regulate the supply of money and neutralize the effect of money expansion. However this objective of a monetary policy is always criticized on the ground that if money supply is kept constant then it would be difficult to attain price stability.7. Equal Income Distribution : Many economists used to justify the role of the fiscal policy is maintaining economic equality. However in resent years economists have given the opinion that the monetary policy can help and play a supplementary role in attainting an economic equality. monetary policy can make special provisions for the neglect supply such as agriculture, small-scale industries, village industries, etc. and provide them with cheaper credit for longer term. This can prove fruitful for these sectors to come up. Thus in recent period, monetary policy can help in reducing economic inequalities among different sections of society.Articles on Monetary Policy1. Instruments of Monetary Policy.2. Limitations of Monetary Policy.3. Recent Reforms in Monetary Policy.4. Evaluation of Monetary Policy.
In economics what is classical dichotomy?
It is a concept in classical economics, that monetary forces could influence the general price level but had no effect on real activity
During the severe recession of 2008-09 the US government embarked on an aggressive fiscal policy to try and end the downturn Most of the increase in spending would be financed by borrowing the gove?
The full question:During the severe recession of 2008-09 the US government embarked on an aggressive fiscal policy to try and end the downturn. Most of the increase in spending would be financed by borrowing; the government is also cutting taxes for many, but not all, Americans. At the time the policy was formulated many economists were confident that the policy would be effective, while another group was quite convinced that the policy would do little to raise the level of GDP. Discuss under what financing and economic conditions an expansionary fiscal policy could be expected to raise the level of real GDP, and under what conditions the policy would fail. Then state your opinion as to whether or not the US policy will work.
What is meant by discretionary fiscal policy?
it means supposedly there is a real financial policy, but in truth, someone else has complete control over it, and may do whatecer they and/or their group desire. Manipulation by the government of policy affecting the macroeconomic status of a country, but only such decisions are made after financial and economic reports are made to the congress/government.
Expansionary fiscal policy is so named because it?
Expansionary fiscal policy is so named because it is designed to expand real GDP.
What has the author Athanasios Orphanides written?
Athanasios Orphanides has written: 'Monetary policy in deflation' 'The decline of activist stabilization policy' 'The reliability of inflation forecasts based on output gap estimates in real time' 'Inflation scares and forecast-based monetary policy' -- subject(s): Forecasting, Inflation (Finance), Monetary policy, Rational expectations (Economic theory) 'Monetary policy with imperfect knowledge'
Discuss the effects of monetary policy on business enterprises in Nigeria?
Monetary policy have both internal and external effect on business enterprises in nigeria. The internal effect comprises of such as expanding the output of the business,maintainig price stability etc. The external effect entails attainment of stable exchange rate. Therefore the main effect of monetary policy is to influence the level of nominal income by influencing either the real output or the price level on buisness enterprices.
What has the author Jeffery D Amato written?
Jeffery D. Amato has written: 'The real-time predictive content of money for output' -- subject- s -: Econometric models, Monetary policy, Money supply, Prediction theory 'Implications of habit formation for optimal monetary policy' -- subject- s -: Consumption - Economics -, Interest rates, Mathematical models, Monetary policy 'The role of the natural rate of interest in monetary policy' 'Forecast-based monetary policy' -- subject- s -: Central Banks and banking, Economic forecasting, Mathematical models, Monetary policy
What is monetary policy's?
Answer 1refers to the actions the federal reserve system takes to influence the level of real GDP and the rate of inflation in the economy.Answer 2Monetary policy refers to the control of the supply of money that usually targets the interest rate. This is done to promote stability and economic growth.
What has the author Matthew B Canzoneri written?
Matthew B. Canzoneri has written: 'Trends in European productivity and real exchange rates' 'Do exchange rates move to address international macroeconomic imbalances?' 'Real interest rates and central bank operating procedures' 'Mechanisms for achieving monetary stability' 'Fiscal constraints on central bank independence and price stability' 'Relative labor productivity and the real exchange rate in the long run' -- subject(s): Foreign exchange rates, Labor productivity, Purchasing power parity 'Is the price level determined by the needs of fiscal solvency?' -- subject(s): Demand for money, Econometric models, Monetary policy, Money supply, Prices, Public Debts 'Currency substitution and exchange rate volatility in the European Community' -- subject(s): Currency substitution, Econometric models, Foreign exchange rates, Monetary policy
What has the author Yasushi Iwamoto written?
Yasushi Iwamoto has written: 'Real budget deficits and fiscal polciy [i.e. policy] in Japan'
What has the author Benjamin M Friedman written?
Benjamin M. Friedman has written: 'Structural models of interest rate determination and portfolio behaviour in the corporate and government bond markets' 'Changing effects of monetary policy on real economic activity' -- subject(s): Debt, Economic conditions, Evaluation, Foreign exchange, Monetary policy, Mortgages 'The Changing Roles of Debt and Equity in Financing U.S. Capital Formation' 'Optimal stabilization policy in the context of a linearized model with endogenous timehorizon' 'Time-varying risk perceptions and the pricing of risky assets' -- subject(s): Assets (Accounting), Econometric models, Prices, Risk 'Even the St. Louis Model now believes in fiscal policy' 'Implications of increasing corporate indebtedness for monetary policy' -- subject(s): Corporate debt, Monetary policy 'Another look at the evidence on money-income causality' -- subject(s): Income, Mathematical models, Money supply 'The LM curve' -- subject(s): IS-LM model (Macroeconomics), Macroeconomics 'What remains from the Volcker experiment?' -- subject(s): Board of Governors of the Federal Reserve System (U.S.), Monetary policy 'Does monetary policy affect real economic activity?' -- subject(s): Monetary policy 'The Greenspan era' -- subject(s): Evaluation, Monetary policy 'Economic stabilization policy' -- subject(s): Economic stabilization, Mathematical models, Mathematical optimization 'Public disclosure and domestic monetory policy' 'Substitution and expectation effects on long-term borrowing behavior and long-term interestrates' 'The Changing Roles of Debt and Equity in Financing U.S. Capital Formation' -- subject(s): OverDrive, Business, Nonfiction 'Implications of corporate indebtedness for monetary policy' -- subject(s): Corporate debt, Economic conditions, Inflation (Finance), Monetary policy 'Identifying identical distributed lag structures by the use of prior sum constraints' 'Increasing Indebtedness and Financial Stability in the United States (Working Papers No. 2072)' 'Bank capital' 'Targets and instruments of monetary policy' -- subject(s): Central Banks and banking, Mathematical models, Monetary policy
What is a main goal of the Federal Reserve in its monetary policy?
Meaning of Monetary PolicyThe term monetary policy is also known as the 'credit policy' or called 'RBI's money management policy' in India. How much should be the supply of money in the economy? How much should be the ratio of interest? How much should be the viability of money? etc. Such questions are considered in the monetary policy. From the name itself it is understood that it is related to the demand and the supply of money. Definition of Monetary PolicyMany economists have given various definitions of monetary policy. Some prominent definitions are as follows.According to Prof. Harry Johnson,"A policy employing the central banks control of the supply of money as an instrument for achieving the objectives of general economic policy is a monetary policy."According to A.G. Hart,"A policy which influences the public stock of money substitute of public demand for such assets of both that is policy which influences public liquidity position is known as a monetary policy."From both these definitions, it is clear that a monetary policy is related to the availability and cost of money supply in the economy in order to attain certain broad objectives. The Central Bank of a nation keeps control on the supply of money to attain the objectives of its monetary policy.Objectives of Monetary PolicyThe objectives of a monetary policy in India are similar to the objectives of its five year plans. In a nutshell planning in India aims at growth, stability and social justice. After the Keynesian revolution in economics, many people accepted significance of monetary policy in attaining following objectives.1. Rapid Economic Growth2. Price Stability3. Exchange Rate Stability4. Balance of Payments (BOP) Equilibrium5. Full Employment6. Neutrality of Money7. Equal Income DistributionThese are the general objectives which every central bank of a nation tries to attain by employing certain tools (Instruments) of a monetary policy. In India, the RBI has always aimed at the controlled expansion of bank credit and money supply, with special attention to the seasonal needs of a credit.Let us now see objectives of monetary policy in detail :-1. Rapid Economic Growth : It is the most important objective of a monetary policy. The monetary policy can influence economic growth by controlling real interest rate and its resultant impact on the investment. If the RBI opts for a cheap or easy credit policy by reducing interest rates, the investment level in the economy can be encouraged. This increased investment can speed up economic growth. Faster economic growth is possible if the monetary policy succeeds in maintaining income and price stability.2. Price Stability : All the economics suffer from inflation and deflation. It can also be called as Price Instability. Both inflation are harmful to the economy. Thus, the monetary policy having an objective of price stability tries to keep the value of money stable. It helps in reducing the income and wealth inequalities. When the economy suffers from recession the monetary policy should be an 'easy money policy' but when there is inflationary situation there should be a 'dear money policy'.3. Exchange Rate Stability : Exchange rate is the price of a home currency expressed in terms of any foreign currency. If this exchange rate is very volatile leading to frequent ups and downs in the exchange rate, the international community might lose confidence in our economy. The monetary policy aims at maintaining the relative stability in the exchange rate. The RBI by altering the foreign exchange reserves tries to influence the demand for foreign exchange and tries to maintain the exchange rate stability.4. Balance of Payments (BOP) Equilibrium : Many developing countries like India suffers from the Disequilibrium in the BOP. The Reserve Bank of India through its monetary policy tries to maintain equilibrium in the balance of payments. The BOP has two aspects i.e. the 'BOP Surplus' and the 'BOP Deficit'. The former reflects an excess money supply in the domestic economy, while the later stands for stringency of money. If the monetary policy succeeds in maintaining monetary equilibrium, then the BOP equilibrium can be achieved.5. Full Employment : The concept of full employment was much discussed after Keynes's publication of the "General Theory" in 1936. It refers to absence of involuntary unemployment. In simple words 'Full Employment' stands for a situation in which everybody who wants jobs get jobs. However it does not mean that there is a Zero unemployment. In that senses the full employment is never full. Monetary policy can be used for achieving full employment. If the monetary policy is expansionary then credit supply can be encouraged. It could help in creating more jobs in different sector of the economy.6. Neutrality of Money : Economist such as Wicksted, Robertson have always considered money as a passive factor. According to them, money should play only a role of medium of exchange and not more than that. Therefore, the monetary policy should regulate the supply of money. The change in money supply creates monetary disequilibrium. Thus monetary policy has to regulate the supply of money and neutralize the effect of money expansion. However this objective of a monetary policy is always criticized on the ground that if money supply is kept constant then it would be difficult to attain price stability.7. Equal Income Distribution : Many economists used to justify the role of the fiscal policy is maintaining economic equality. However in resent years economists have given the opinion that the monetary policy can help and play a supplementary role in attainting an economic equality. monetary policy can make special provisions for the neglect supply such as agriculture, small-scale industries, village industries, etc. and provide them with cheaper credit for longer term. This can prove fruitful for these sectors to come up. Thus in recent period, monetary policy can help in reducing economic inequalities among different sections of society.Articles on Monetary Policy1. Instruments of Monetary Policy.2. Limitations of Monetary Policy.3. Recent Reforms in Monetary Policy.4. Evaluation of Monetary Policy.
In economics what is classical dichotomy?
It is a concept in classical economics, that monetary forces could influence the general price level but had no effect on real activity
What has the author Pau Rabanal written?
Pau Rabanal has written: 'The cost channel of monetary policy' -- subject(s): Econometric models, Economic aspects, Economic aspects of Monetary policy, Inflation (Finance), Labor costs, Monetary policy 'Euro-dollar real exchange rate dynamics in an estimated two-country model' -- subject(s): Econometric models, Foreign exchange rates, Euro-dollar market
What has the author Brian J Cody written?
Brian J Cody has written: 'Evaluating commodity prices as a gauge for monetary policy' -- subject(s): Mathematical models, Prices, Monetary policy, Inflation (Finance) 'Planting the Seed to Master the Money Tree of Knowledge' -- subject(s): Multiple stream of income ideas, understand your 401(k) retirement accounts, stock trading strategies, real estate ideas 'Seignorage and the European Community' -- subject(s): Monetary policy
