CHAPTER 5: ISLAMIC MACROECONOMICS

➢ Macroeconomics Goals
o Increase employment Rate
o Poverty alleviation
o Control Inflation
o Growth and stability
o Growth and equity

➢ Money and Monetary Policy

o The nature of money
- Exchange, which entails the process of give and takes in the transfer of
goods and services with others.
o The function of money
- As a medium exchange, unit of account, store of value, and as a standard of
deferred payment
o Money creation in conventional banking system
- The largest component of the money supply is bank deposits

➢ Issues of Islamic Macroeconomics

o Gold dinar
o Money
o Riba
o Time value of money
o Trade
o Rent

➢ Principles of Monetary Policy in Islamic Framework

o Monetary policy has to be as important an instrument of public policy in an
Islamic economy as it is in its capitalist counterpart.
o There can be no question that monetary policy in an Islamic economy should
not only be in conformity with the ethos of Islam but should also help realise
the socio-economic goals that Islam emphasizes.
o In economic well-being with full employment and high rate of growth, the
inevitable outcome pf the Islamic belief that human beings are the vicegerents
of God, is that they must lead a life that befits their status.

➢ Objectives of monetary policy

o To promote the economic growth and employment
o Promotes the goal of distributive justice

➢ Instruments of monetary policy

o Required reserve ratio
o Discount rate
o Open-market operations

➢ Fiscal Policy
o Fiscal policy can be defined as the policy that works through the government
budget in a country
o Fiscal policy work thru expenditures, taxes, and subsidies at the government
level.
➢ Objectives of fiscal policy
o To achieve the justice and equity
o To improve the culture milieu of the society
o To enhance the community’s economic resources or economic growth

➢ Budgeting in Islam
o Zakat
o Kharaj
o Jizyah
o Ghanimah
o Fay and ushur

➢ Concept of distribution in Islam

o Distribution in Islam is differing from the capitalism and socialism
o In Islam the distribution based on divine in moral and ethical value addressing
humanity, sympathy, forgiveness, generosity and clarity.
o To ensure well-being (Falah)of its followers in this world and hereafter.