Question

The President of Ghana launched the COVID-19 business alleviation program in collaboration with the National Board for Small scale industries, Trade associations and some banks. Under the programme the government is giving funds without interest to selected financial institutions for onward lending t businesses at a 3% interest. The program is aimed at helping beneficiaries to sustain their businesses during the COVID-19 pandemic.

a) Explain in your own words the monetary policy tool being used by the government under this program

Answer 1

Monetary approach is the strategy embraced by the monetary authority of a nation that controls either the loan cost payable on transient obtaining or the cash flexibly, regularly focusing on expansion or the loan cost to guarantee value steadiness and general trust in the money.

In contrast to fiscal arrangement, which depends on tax assessment, government spending, and government getting, as apparatuses for an administration to oversee cyclic budgetary swings, for example, downturns, monetary strategy expects to control the cash gracefully, for example 'printing' more cash or diminishing the cash flexibly by changing loan costs or expelling abundance saves.

Further objectives of a monetary approach are for the most part to add to the soundness of total national output, to accomplish and keep up low joblessness, and to keep up unsurprising trade rates with different monetary standards.

Expansionary strategy happens when a financial power utilizes its devices to animate the economy. An expansionary strategy keeps up momentary financing costs at a lower than common rate or expands the all out flexibly of cash in the economy more quickly than expected. It is customarily used to attempt to battle joblessness in a downturn by bringing down financing costs with the expectation that more affordable credit will tempt organizations into extending. This expands total interest (the general interest for all merchandise and enterprises in an economy), which lifts momentary development as estimated by total national output (GDP) development. Expansionary money related approach for the most part lessens the estimation of the cash comparative with different monetary standards (the swapping scale).

Under this arrangement, the accompanying advances are taken-

• Lower financing costs make it less expensive to get; this urges firms to contribute and shoppers to spend.

• Lower loan fees diminish the expense of home loan intrigue reimbursements. This gives family units more noteworthy extra cash and empowers spending.

• Lower loan costs diminish the motivating force to spare.

• Lower loan costs diminish the estimation of the currency, making trades less expensive and increment send out interest.

Notwithstanding cutting loan costs, the Central Bank could seek after an approach of quantitative facilitating to expand the cash gracefully and decrease long haul financing costs. Under quantitative facilitating, the Central bank makes cash. It at that point utilizes this made cash to purchase government bonds from business banks. In principle, this should:

• Increase the money related base and money stores of banks, which should empower higher loaning.

• Reduce financing costs on bonds which should support speculation.