Scribd
Upload
129 views22 pages

Monetary and Fiscal Policy

This document discusses monetary and fiscal policy. It defines key terms and outlines the goals and tools of monetary policy, including the central bank's role in managing interest rates and money supply. It also defines fiscal policy and describes the government's tools of taxation, spending, and borrowing to influence aggregate demand. The ultimate goals of these policies are price stability and balanced economic growth.

Uploaded by

Ver Dnad Jacobe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
129 views22 pages

Monetary and Fiscal Policy

This document discusses monetary and fiscal policy. It defines key terms and outlines the goals and tools of monetary policy, including the central bank's role in managing interest rates and money supply. It also defines fiscal policy and describes the government's tools of taxation, spending, and borrowing to influence aggregate demand. The ultimate goals of these policies are price stability and balanced economic growth.

Uploaded by

Ver Dnad Jacobe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 22

Monetary and Fiscal Policy

• The main focus of monetary and fiscal policy is


to manage aggregate demand; that is toset
forth aggregate demand (AD) equal to
aggregate supply(AS) in the economy in the
price level wil be maintained at the current
level.
Key Terms
• Contractionary •Overnight Reverse
• Expansionary Monetary Policy Purchase Rate
• Inflation Targeting • Price Stability
• Interest Rate • Real Interest Rate
• Interest Rate Targeting • Rediscount Rate
• Monetary Aggregate Targeting •Reserve
• Monetary Policy Requirement
• Nominal Interest Rate •Special Deposit
• Open Market Operation Account Facility
• Overnight Purchase Rate
Monteray Policy

• Is one of the types of government


macroeconomics policy. It also used for the
purpose of achieving athe governments
macroeconomic goals (stable price level,
economic growth like)
Central Bank and Bangko Sentral ng
Pilipinas
Central Bank
• Is the central monetary authority w/c provides
monetary policy directions that cover the
areas of money,credit and banking. It also
supervises the operation of banks and
regulates the activities of nonbank financial
institutions or intermediaries.
Bangko Sentral ng Plilipinas
• The primary mandate of the BSP is, "to
promote price stability conductive to a
balanced and sustainable growth of
economy", Par.2, Sec. 3, R.A No. 7653.
The BSP focuses the three main areas
or pillars to carry out the mandate
• Price Stability- this refers to the condition of low
and stable inflation rate.
• Financilan Stability- the BSP make sure that
financial institutions ( bank and nonbank) follow
the prudential rules and regulations.
• Efficient Payments and Settlement System- the BSP
guarantees that the settlement of financial
transactions of financial transactions of the general
public are safe, timely and accurate.
Monetary Policy Frameworks
• Monetary policy has three frameworks that can be
adopted by the central bank of the country to
achievebthe desired level of inflation rate thus
affecting the level of economic growth this are:
1.) Monetary Rate Targeting- this framework is an
approach to an monetary policy undertaken by central
banks that aims to influence the behavior of monetary
aggregates.
2.) Interest Rate Targetting- this involves actions of
central bank that affect the targeted level of interest
rate.
3.) Inflation Targeting- it involves the
announcement of an explicit inflation target that
the central bank promises to achieve over a
given period.
Monetary Policy Tools
• In order to undertake its monetary policy the BSP
uses the ff. monetary policy tools or instruments
in order to influence the desired level of liquidity
in the economy.
1.) BSP's Policy Interest Rate- used by BSP when it
lends or borrows to or from banks with government
securities as collateral.
2.) Reserve Requirement- it refers to the mandatory
proportion of the deposits and substitute liabilities
of the banks that they hold as reserves.
3.) Special Deposit Account Facility- this facility
allow banks and trust entities of BSP financial
institutions to have fixed-term deposits with the
BSP.
4.) REDISCOUNT Rate- this is interest rate that BSP
uses when it lends money to a financial institutions.
5.) Open Market Operations- it involves the outright
sale or purchase a government by the BSP.
Monetary Policy Stance
• when the BSP uses its tools, it can either increase
or decrease the overall level of money supply in
the economy called expansionary, monetry policy
or cotractionary monetary policy, respectively.
Expansionary Monetary Policy- That intends to
increase the level of money supply in the economy.
Contractionary monetary policy- that aims to
decrease the level of money supply in the economy
Fiscal Policy

• Refers to the government actions that affect


total government spending activities, tax rates
ortax revenues, or the government budget
deficit.
Types of Fiscal Policy
• Governments spend money and collect taxes on a
continue basis; whether intended or not, their
spending activities and taxing actions affect
aggregate demand.

2 types of fiscal policy:


1.) Automatic Stabilizer- are government spending or
taxations actions that takes place w/o any
deliberate government control and tend to
automatically dampen the business cycle.
2.) Discretionary Fiscal Policies
•are government spending and taxation actions
that have been deliberately taken to achieve
specified macroeconomic goals.

Example: if the economy is headed to a


recession the government can make a decision
to cut taxes to maintain purchasing power.
Components of Fiscal Policy

1.) Taxation- the most important generating


measures of the government
2.) Government Borrowing- borrowing a central role
in the fiscal policy of the Philippine government due
to the efficiency of its local and national tax
collection.
3.) Government Spending- the spending system is
the government fiscal arm producing, allocating and
distributing social goods and services.
Stances of Fiscal Policy

1.) Neutral- implies a balanced economy w/c


results in large tax.
2.) Expansionary- involves government
proceeding tax revenue.
3.) Contractionary- occurs when government
speeding is lower than tax revenue.
Three major function of fiscal policy
• Allocation function- it is the process by w/c
total reources are divided between private and
social goods is chosen.
• Distribution Function- this refers to the
adjustment of income and wealth to assure the
comformance ( what society considers as "fair"
state of distribution)
• Stabilization Function- this pertains to use of
budget policy to maintain high employments,
price level stability and economic growth
Fiscal Policy ofnthe Philippines

• Is characterized by continues and increasing


levels of dept and budget deficits.
Accounting versus Economic Costs

Economic Costs are forwarding looking costs,


meaning economist are in tune w/ future costs
bec. these costs have major repercussions on
the potential pofitability of the firm. Accounting
costs tent to be retrospective; they recognize
costs when these are made and properly
recorded.
Implicit versus Explicit Costs

• Explicit Costs- refer to the actual expenses of


the firm in purchasing or hiring the inputs it
needs such as, when firm purchases a machine
worth one million pesos or rents a building
worth one hundred thousand pesos per month.
• Implicit Costs- refer to the value of inputs being
owned by the firm and used in its own produced
process.

You might also like