Economic Real World

Topics: Inflation, Monetary policy, Public finance Pages: 8 (2376 words) Published: January 21, 2013
Table of Contents
1.0 Introduction1
2.0 Question A:2
2.1 Monetary Policy2
2.1.1 Real World Example : Pakistan3
2.2 Fiscal policy3
2.2.1 Real World Example: Fiscal spending stepped up to prevent deep recession in Malaysia4 3.0 Question B:6
3.1 Demand-Pull Inflation6
3.1.1 Real World Example6
3.2 Cost-Push Inflation7
3.2.1 Real World Example7
4.0 Conclusion9
5.0 References10
5.1 Books10
5.2 Online Journals10
5.3 Online Article10
5.4 Online Sources10
6.0 Appendix11

1.0 Introduction
On the assignment give, we need to explain with the examples what are the government policies been helpful or harmful in contributing to faster economic growth in developing countries. We also need to list and explain the types of inflations and provide 2 common inflations happen in Malaysia with relevant examples.

2.0 Question A: To what extent have government policies been helpful or harmful in contributing to faster economic growth in developing countries during recent year? Discuss with reference to specific examples. 2.1 Monetary Policy

The fundamental objective of monetary policy is to assist the economy in achieving a full employment, noninflationary level of total output. Monetary policy consists of altering the economy’s money supply to stabilize aggregate output, employment, and the price level. (McConnell.C,1993)

It is impossible to use monetary policy as a precise mean of controlling aggregate demand. It is especially weak when it is pulling against the expectation of firms and consumers, and when it is implemented too late. However, if the authorities operate a tight monetary policy firmly enough, they should eventually be able to reduce leading and aggregate demand. But there will inevitably be time lags and imprecision in the process. An expansionary monetary policy is even less reliable. If the economy is in recession, no matter how low interest rates are driven, people cannot be forced to borrow if they do not wish to. Firms will not borrow to invest if they predict a continuing recession.

(Sloman J, 2009)

The possible techniques available to the authorities have one major feature in common: they involve manipulating the liquid assets of the banking system. The aim is to influences to total money supply by affecting the amount of credit that banks can create. * Open market operation: the sale by the authorizes of government securities in the open market in order to reduce money supply.

* Funding: where the authorities alter the balances of bills and bonds for any given level of government borrowing.

* Minimum reserve ratio: A minimum ratio of cash to deposits that the central bank required banks to hold. (Sloman J, 2001) 2.1.1 Real World Example : Pakistan

Based on the journals that we used as a sources for our research, monetary policy is a policy that helpful to a country, and below is the detail of that journals. In its monetary policy statement for the first half of 2008/09, the State Bank of Pakistan (SBP, the central bank) noted that government borrowing from the central bank, which it had earlier described as having reached alarming levels during 2007/08, had continued unabated. In addition, the statement reported that the secondary effects of high food price inflation had become embedded in inflationary expectations, and also that the inflation rate continued to be stoked by aggregate demand pressures and, more alarmingly, by "a fall in the productive capacity of the economy". In response to these developments, the SBP raised its benchmark interest lending rate by 1 percentage point, to 13%, with effect from July 30th. Although it took steps to ease liquidity in October 2008, the bank is unlikely to be able to cut the benchmark interest rate as long as inflation remains at...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Exemption Essay on Does High School Properly Prepare Students For Real World Experiences?
  • Reality Shows: Real or Fake Essay
  • The Real in Reality Television Essay
  • Essay on Ghost World: Argumentative Comparison
  • Real Games Essay
  • Real but Not Really: the Reality Tv Genre Essay
  • Analysis & Reading Map of "The Marginal World" Essay
  • Reality TV VS Real Life TV Essay

Become a StudyMode Member

Sign Up - It's Free