Question

3500 words

introduction: Write in two paragraphs background information of monetary policy and Fiscal policy.

report questions:

1. Outline the differences between monetary policy instruments, targets and objectives.
2. Provide details about a central bank’s open market operations. Why are open market operations more advantageous than other tools of monetary policy?
3. “Interest rates can be measured more accurately and more quickly than money supply. Hence interest rate is preferred over the money supply as an intermediate target”. Do you agree or disagree? Explain you answer.
4. How do expectations about the future by households and businesses affect the effectiveness of fiscal policy?

conclusion: Write a paragraph on recommendation and policy implications.

Answer 1

Monetary and fiscal policies are the two important policies for the maintenance or stabilisation of the economy. Monetary policy is the policy of the central bank related to open market opera, bank rate repo rate, reverse repo rate etc. Central bank adopted contarctionary and expansionary monetary policies to control and to promote inflation in the economy.

On the other hand  fiscal policy is the policy of the government related to taxation, public expenditure, public debt and deficit financing. In order to control inflation, contrctionary fiscal policy will be adopted and vice-versa. The objectives of fiscal policy are price stability,economic growth, full employment, equity, internal stability etc.

a. Monetary policy objectives are economic growth, full employment, price stability, exchange rate stability and BOP equilibrium. The most important monetary targets are interest rate, monetary aggragates and exchange rate. Theses targets are called intermediate targets of monetary policy. Because it can be easily measured.

3.