Question

Recently Bank of Tanzania announced Expansionary Monetary policy instruments during this period of COIVD-19 outbreak. In relation to BOT decision, explain which roles that can be played by Commercial Banks in Tanzania to subdue the economy during the pandemic

Answer 1

The supply and demand model according to keynes theor works in the model of recession and slowdown according to which the expansionary monetary policy and fiscal policy is encouraged by the bank and the government to promote expandability so as to increase the demand in the economy and produce goods and services. So that again the output and GDP will increase and the income will increase which will increase the cycle flow of income.

When the central bank of any country adopts a monetary policy and tries to overcome the resolution, ie the slowdown, then the open market operations or otherwise by the bank of that country.

This is done by reducing the repo rate and the interest rate of the banks, so that consumers do not have problems in taking loans and get cheaper loans which leads to further investment in demand and which leads to increase in GDP. And at the same time maintains the cycle of income flow continuously.

According to the multiplier of GDP concept, when the income of consumers increases then they make investment of their income which causes GDP and output, increment which again create new jobs and increase income and thus GDP multiplication.. At the same time there is a cycle of income flow, which is also possible through a monetary policy instrument.