Monetary & fiscal policies

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it shows two pilicies of macroeconomics

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Monetary & fiscal policies

  1. 1. Monetary & Fiscal Policy
  2. 2. Monetary policy
  3. 3. Monetary policy refers to <ul><li>The credit control measures adopted by the Central bank of a country </li></ul>
  4. 4. Instruments of monetary policy <ul><li>Bank rate policy </li></ul><ul><li>Open market operations </li></ul><ul><li>Higher CRR & SLR </li></ul><ul><li>Selective credit controls (margin requirements) </li></ul>
  5. 5. Expansionary monetary policy <ul><li>It is used to overcome recession or depression. </li></ul><ul><li>When there is fall in consumer & business demand the government eases the credit market conditions, purchases government securities lowers the reserve requirements which leads to an upward shift in the AD. </li></ul>
  6. 6. Restrictive monetary policy <ul><li>It is designed to curtail AD in times of inflationary trends </li></ul>
  7. 7. Fiscal policy
  8. 8. Fiscal policy means <ul><li>The use of taxation and public expenditure by the government for stabilization or growth. </li></ul><ul><li>By fiscal policy is meant government actions affecting its receipts and expenditures which are ordinarily taken as measured by the government’s receipts, its surplus or deficit . </li></ul>
  9. 9. Instruments of fiscal policy <ul><li>Public expenditure </li></ul><ul><li>Taxes </li></ul><ul><li>Public debts </li></ul>
  10. 10. Crowding Out <ul><li>A situation in which the government is borrowing heavily while businesses and individuals also want to borrow. </li></ul><ul><li>The former can always pay the market interest rate, but the latter cannot, and is crowded out. </li></ul>
  11. 11. <ul><li>Crowding out is any reduction in private consumption or investment that occurs because of an increase in government spending. If the increase in government spending is not accompanied by a tax increase, government borrowing to finance the increased government spending would increase interest rates, leading to a reduction in private investment </li></ul>
  12. 12. THANK YOU

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