Monetary Policy – Advantages and Disadvantages of Two PoliciesEssay Preview: Monetary Policy – Advantages and Disadvantages of Two PoliciesReport this essayMonetary policy is typically implemented by a central bank, while fiscal policy decisions are set by the national government. However, both monetary and fiscal policy may be used to influence the performance of the economy in the short run of a country. The principle aim of fiscal and monetary policy is also to reduce cyclical fluctuations in the economic cycle. Often it is inflation targeting which is stressed most for monetary policy (Lowe. P, 1997). In short definition, Fiscal Policy involves changing government spending and taxation. It involves a shift in the governments budget position. For example, expansionary fiscal policy involves tax cuts, higher government spending and a bigger budget deficit. However, monetary policy involves influencing the demand and supply of money, primarily though the use of interest rates. It can also involve unorthodox policies such as open market operations and quantitative easing (Lowe. P, 1997).
Advantages and Disadvantages of two policiesHowever, the pro and cons for fiscal policy, disadvantages are more than the advantages. In the advantage part, if use the government spending, we can directly spending towards areas in need such as infrastructure, education and make investment for future. In opposite of that, knowledge become an issue regarding the state of economy and the amount of an expansion or contract needed. By using a balanced budget it can also provide a stimulus without adding to the government budget deficit, somehow the problem always come from the government of disagreeing regarding the extent to which deficits problem. While fiscal policy may lead
to government deficits or debt, we can see the debt ratio as only the GDP (Gross Domestic Product) grows, it can bring down the debt but the disadvantage is time lags.
On the monetary policy side, the policy can initiated immediately but knowledge problem arise again same as in fiscal policy. The expansionary of policy leading to depreciating currency can stimulate exports and it cant directly spend to particular uses such as infrastructure and spending may be done in wasteful ways for example speculation, mergers and acquisitions. It also disadvantages and risky state while government does not incur debt hence the private sector is encouraged to borrow and take on debt. Another advantage of monetary policy is the Fed is theoretically insulated from the political process. But somehow, some activities are foster at very low interest rate such as Japans Yen currency trade.
The IMF and the Monetary Policy Council have an important point here. The money supply must be restrained as inflation is low and the growth is slow, it is better to control growth so that the economy works faster.
I agree with the comments from Dr. Shashid. Some economists think that money has the capacity to be used as a tool to increase production. When there is large production and consumption demand and production demand is not strong and demand is increasing with demand, it must not become a constraint that can either be controlled or stopped at certain point in time. This means, let’s say that demand for a large number of goods is sufficient for the country to produce the goods it needs. This also makes it possible to generate additional goods in a short time, thus the economic growth could be reduced. The more money in circulation, the higher the demand. It is just that this reduces the cost of consuming and increasing output.
I think that the problem has reached a critical point when it is time for reform, this is to limit inflation. If money is not a tool for increasing growth, then if government cannot keep its balance sheets it is impossible for it to do with a sustainable income. This is a political problem and could impact in time a lot of policy innovations such as “liquidity”, which is why the Reserve Bank of India has already started to hold its balance sheets.
Shashid: The Central Bank should not do this. It will not create prosperity and the growth depends on keeping the current interest rates low. The fact that Central Bank does not have a policy are the people who are in charge of this do not have a political position. It is obvious that they must vote for the same. They can understand the idea because they have a political opinion. But in reality a country cannot create high growth. We have to take into account both its population size and its income per person and this also also depends on how it is used. Otherwise this will not work in the economic area. Also, the more money in circulation means more jobs and the higher the demand for money. Why is this important? Because there were several economic interventions undertaken in the name of government which made the country more attractive to individuals and the people. Also, this is why this is important. The government is very weak. It is able to avoid crisis. But if it does not have an appetite to take steps and take actions, it might start to run out of government. So when people do not like a policy then it is needed to take steps. And the central bank does not have enough money to provide that so it will fail, it might not achieve the objectives and it might not succeed in keeping the economy growing.
The IMF and the Monetary Policy Council have an important point here. The money supply must be restrained as inflation is low and the growth is slow, it is better to control growth so that the economy works faster.
I agree with the comments from Dr. Shashid. Some economists think that money has the capacity to be used as a tool to increase production. When there is large production and consumption demand and production demand is not strong and demand is increasing with demand, it must not become a constraint that can either be controlled or stopped at certain point in time. This means, let’s say that demand for a large number of goods is sufficient for the country to produce the goods it needs. This also makes it possible to generate additional goods in a short time, thus the economic growth could be reduced. The more money in circulation, the higher the demand. It is just that this reduces the cost of consuming and increasing output.
I think that the problem has reached a critical point when it is time for reform, this is to limit inflation. If money is not a tool for increasing growth, then if government cannot keep its balance sheets it is impossible for it to do with a sustainable income. This is a political problem and could impact in time a lot of policy innovations such as “liquidity”, which is why the Reserve Bank of India has already started to hold its balance sheets.
Shashid: The Central Bank should not do this. It will not create prosperity and the growth depends on keeping the current interest rates low. The fact that Central Bank does not have a policy are the people who are in charge of this do not have a political position. It is obvious that they must vote for the same. They can understand the idea because they have a political opinion. But in reality a country cannot create high growth. We have to take into account both its population size and its income per person and this also also depends on how it is used. Otherwise this will not work in the economic area. Also, the more money in circulation means more jobs and the higher the demand for money. Why is this important? Because there were several economic interventions undertaken in the name of government which made the country more attractive to individuals and the people. Also, this is why this is important. The government is very weak. It is able to avoid crisis. But if it does not have an appetite to take steps and take actions, it might start to run out of government. So when people do not like a policy then it is needed to take steps. And the central bank does not have enough money to provide that so it will fail, it might not achieve the objectives and it might not succeed in keeping the economy growing.