Monetary and fiscal Policy

Question 1

What is monetary policy?

Answer 1

Monetary policy refers to the credit control measures adopted by the central bank of the country. It is a policy formulated by the central bank of a control to help control the supply of money as an instrument for achieving the objectives of general policy

Question 2

Objective of monetary policy

Answer 2

• Full employment
• Price stability
• Economic growth
• Balance of payment equilibrium

Question 3

Instruments of monetary policy

Answer 3

-Quantitative or indirect:
Open market operation
Bank rate
Change in reserve ratios

Qualitative or direct:
Selective credit control
Moral season

Question 4

What is fiscal policy?

What is taxation?

Answer 4

Fiscal policy is the variations in taxation and public expenditure programmed by the government to achieve a certain objective

While taxation is a measure of transferring funds from the private to the public.public expenditure increases the flow of funds into the private economy

Question 5

Instruments of fiscal policy

Answer 5

• Deficit budget policy

- Surplus budget policy

Question 6

Problems of monetary policy in a developing country

Answer 6

• The money and capital market are undeveloped
• Bank money comprises of a small proportion of the total money supply as a result the central is not in the position to control credit.
• Majority of commercial banks possess high liquidity so they are not influenced by the policy by the central bank.
• there is a large non monetized sector, people mostly live in rural areas
• lack of banking habits

Question 7

Indicators of fiscal policy

Answer 7

Aggregate demand
Investment
Total reserves
Interest rate