Question

In: Economics

1-Contrast the actions a central bank of Oman (CBO) should take when an economy is in...

1-Contrast the actions a central bank of Oman (CBO) should take when an economy is in recession with production substantially below potential GDP and those needed when an economy is producing in overdrive above potential GDP

2-Identify the three government policies for assuring safe and stable banking systems.

Solutions

Expert Solution

Exceptional and far reaching fiscal and monetary policy adopted by the central bank for advanced economy will stimulate the spending and also aimed for addressing the public health. Oman authorities give preference to support the non oil economic activities which is more important in sustainable growth. Central Bank of Oman give preference for the improvement of three financial performance; institution size, asset management and operational efficiency. If the economy want to overdrive above the potential GDP, the central bank should increased the pumping of money to the economy. Increasing the level of money in the economy will increase the demand for goods and services and also shifts the level of aggregate demand. Here the production will come above the potential GDP. The expansionary monetary policy by Oman attracts more investors to the oil production and the average GDP will raise from the actual point.
One of the most important policies by government regarding stability of the banks is nationalisation. Government have full power to regulate the banking activities and also undertake the banks under certain situations. This nationalisation also strengthens the balance sheet of the banks. Enhancing the non banking financial corporations will expand the banking activities even in remote areas and develop the rural areas also. Providing banking license to the private banks also increase the level of profit earnings in the economy. Other major government policies are granting license to set different types of payments, encouraging foreign banks to convert the owned subsidies.


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