02 ACTIVITY 1

1. Given the circumstances, do you expect that the administration will be more concerned about
increasing economic growth or reducing inflation?
 the administration is normally most concerned with resolving the unemployment problem
by increasing economic growth. This would be especially true just before an election year.

2. Given the circumstances, do you expect that the Fed will be more concerned about increasing
economic growth or reducing inflation?
 The BSP tends to focus on maintaining a low level of inflation, because of the possibility that
sustained high inflation can cause high interest rates, which may result in a sluggish
economy in the long run. It is not unusual for the Fed to focus on fighting inflation while the
administration is more concerned about economic growth. However, given that the
chairman of the BSP wants to be reappointed, he may be more willing to endorse a
monetary policy that is desired by the administration.

3. Your firm is relying on you for some insight on how the government will influence economic
conditions and hence the demand for your firm’s securities. Given the circumstances, what is
your forecast of how the government will affect economic conditions?
 Both the government’s and the Bangko Sentral ng Pilipinas objectives are to maintain the
right balance between economic growth and financial stability in the economy. The
government does so through its fiscal policy measures, and the BSP, through its monetary
policy measures. In practical life, however, this is not so simple, and elections have a way of
introducing a further layer of complexity. Governments are elected for a limited term
through the mandate of the people. Now, any government would like to get re-elected, and
to that end, may choose to implement short-term policies that are aimed towards pleasing
the general public, which is not always in the best interest of the economy. The BSP, on the
other hand, is supposed to be a more long-term focused institution that focuses on stability,
while keeping in mind economic growth. It is supposed to be an institution that functions
independently of the government. However, the practical situation is a little different. This is
because the BSP chairman, at the end of the day, is appointed by the present government
itself which can put pressure on him/her to please the government in power. Based on
these arguments, it can be concluded that elections and general human desires play a major
role in influencing fiscal and monetary policies