Professional Documents
Culture Documents
Monetary & Fiscal Policy
Monetary & Fiscal Policy
MACROECONOMIC POLICIES
Fiscal Policy
Related to
budget, Govt.
Exp., Taxation,
Public Debt
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Monetary
Policy
Related to Ms,
Exchange rate
control, Bank
rate control,
Interest Rate
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MONETARY POLICY
Regulation of supply of Money & Cost,
Availability of Credit in the economy
OBJECTIVES OF M. P.
Monetary policy is an instrument which
affect the credit flow in an economy.
The variation affect the demand & supply
of credit in an economy & the level or
nature of economic activities
Stability in price level
Economic development
Arrangement of full employment
Expansion of credit facility
Stability in exchange rate
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INSTRUMENTS OF M. P.
GENERAL (QUANTITATIVE) Methods
SELECTIVE (QUALITATIVE) Methods
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GENERAL (QUANTITATIVE)
METHODS
MONETARY POLICY
INFLUENCE
Policy Variables
- Money supply
Target Variables
-Inflation
-Interest rate
- OMO: Liquidity
-Real GDP
conditions
-Employment
-Consumption
repo etc.)
-Savings
-Investment
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Commer
-cial
banks
interest
rate
Demand
for
credit &
loans
Flow of
money
Demand
for credit
& loans
Flow of
money
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USE OF O. M. O.
In The
Inflationary
Situation
In The
Recessionary
Situation
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RBI sales
out the
securities
to
commercial bank
RBI
purchases
securities
from
commercia
l bank.
RBI
decreases
the money
supply
RBI increases
the money
supply.
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In Recessionary
Situation
Reduces the Ms in an
economy
Increases the Ms in an
economy
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REVERSE REPO
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SUMMARY OF QUANTITATIVE
METHODS
EXPANSION OF
CREDIT
CONTRACTION
OF CREDIT
Purchase of securities
Sales Of Securities
Reduce C.R.R.
Increase C.R.R.
Reduce S.L.R
Increase S.L.R.
Increase Reverse
Repo Rate
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SPECIFIC/QUALITATIVE
CREDIT CONTROL
Adopt for expansion and contraction of
credit to attain specific objective.
Methods of qualitative credit control
Credit rationing
Change in margin
Direct action
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LIMITATIONS OF M. P.
Conflicting Goals
Limitations During Deflation
Limitations During Inflation
Near Money Assets
NBFIS
Attitude Of Banks
Limitation In Underdeveloped Countries
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Inside
& Outside Lag
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HISTORY
Importance of Fiscal Policy Post Great Depression
The ineffectiveness of monetary policy as a
means of overcoming the severe unemployment
of the Great Depression
The development of the new economics by
Keynes with its emphasis on aggregate demand.
Fiscal policy is based on the theories of British
economist John Maynard Keynes [also known as
Keynesian Economics]
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MEANING
Measures related to taxation & public
expenditure are normally called fiscal
measures and the policy concerning them
is known as FISCAL POLICY.
In short, fiscal policy or budgetary policy
consists of steps & measures which the
government implements to fulfill the aims
of economic policy.
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INSTRUMENTS
Public Revenue
Public Spending
Public Debt
Inflation
Employment
Consumption
Savings
Investment
[resource allocation]
Income Distribution
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OBJECTIVES OF F. P.
To achieve and maintain
employment in the economy.
the
full
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INSTRUMENTS OF F. P.
PUBLIC EXPENDITURE
Plan & Non - Plan
Development & Non- Development
PUBLIC REVENUE
Tax
Non - Tax
PUBLIC DEBT
Internal Debt
External Debt
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PUBLIC EXPENDITURE
Revenue Expenditure
Capital Expenditure
Plan Expenditure
Plan Expenditure
Central Plan such as
Developmental Projects
agriculture, rural
development, social service
and others
Central Assistance for plans
to States and UTs
Non Plan Expenditure
Interest Payments
Subsidies
Debt relief to farmers
Grant to states and UTs
Others
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EFFECTS OF P. E.
Govt. exp. should be reduced in inflation and
increased during depressions in case of a
deflationary situation in an economy. Therefore it
act as a balancing factor between saving &
investment
Pump Priming - The government spending which
will have the effect of setting the economy going
on the way towards full utilization of resources.
E.g. Govt. Exp., building infrastructure etc.
Compensatory Spending - The government
spending which will have the effect of setting the
social objective and payment of interest on debt.
E.g. schools, hospitals, pensions, relief payments
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etc.
Public Revenue
Revenue Receipts
Tax Revenue: Direct Taxes
Income Tax
Corporate Tax
Wealth Tax
Indirect Taxes
Customs
Excise
Others
Non Tax Revenue
Interest receipts
Dividend
Profits of PSUs
Revenue from social services
like education and hospitals
External Grants
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Capital Receipts
Market Borrowing-internal debt
Disinvestment of PSUs
Recoveries of loans
Borrowing from external markets
External loans/Debts from
world institutions
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TAXATION
Meaning:Source of Revenue
Helps Govt. to do there exp.
Generated from public
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Public Debt
When Govt. exp. are more then Govt.
revenue Government take Public Debt.
Deficit financing = Govt. exp. Govt.
revenue.
Government take the public debt to fulfill
the gap between its exp. and the revenue.
Government debt can be categorized as
internal debt-owed to lenders within the
country, and external debt-owed to foreign
lenders.
Government Borrowing leads to Crowding
out effect
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INDICATORS OF FISCAL
IMBALANCES
Revenue Deficit
Revenue expenditure is met out of current
revenue receipts
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LIMITATIONS OF F. P.
Limitations during deflation
Limitations during inflation
Limitations in underdeveloped countries
Lack of adequate forecasting
Size of fiscal measures
Changes in the B.O.Ps
Nature of peoples efforts
Burden of public debt
Problems relating to deficit Financing
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Tighter
credit
World trade
contraction
by 2.8%
Recession
Estimated PPP
Global Growth
0.5%
Production
Plunge
Demand
Slump
Job losses
IMPACT ON INDIA
Money and credit market
Domestic
Banks
Local
Institutions
Domestic
MFs
NBFC
R
e
Financial Channel
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Fiscal Policy
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Growth Amid
Global Economic Slowdown
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CURRENT RATES
Inflation
Bank Rate
CRR
4.75%
SLR
24.0%
Repo Rate
8.0%
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10.0% 10.50%
55.76
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40
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