In this chapter you will learn the theory of liquidity preference as a short-run theory of the interest rate, analyze how monetary policy affects interest rates and aggregate demand, analyze how fiscal policy affects interest rates and aggregate demand, discuss the debate over whether policymakers should try to stabilize the economy. | Lecture 32 Monetary and Fiscal Policy Instructor: Abbas Course code: ECO 400 Lecture Outline Monetary Policy B. Fiscal Policy Monetary Policy Monetary policy is concerned with regulation of quantity, cost and allocation of money and credit in the economy. It is a mechanism, which has serious implication for economic development .It helps individuals decide the amount and place of investment, rate of savings and spending. Monetary Policy Definition of Monetary Policy The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault Money policy in many countries has been kept away from direct arena of government. The government only establishes basic rules and eventual targets. . | Lecture 32 Monetary and Fiscal Policy Instructor: Abbas Course code: ECO 400 Lecture Outline Monetary Policy B. Fiscal Policy Monetary Policy Monetary policy is concerned with regulation of quantity, cost and allocation of money and credit in the economy. It is a mechanism, which has serious implication for economic development .It helps individuals decide the amount and place of investment, rate of savings and spending. Monetary Policy Definition of Monetary Policy The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault Money policy in many countries has been kept away from direct arena of government. The government only establishes basic rules and eventual targets. However, in Pakistan many policy has been a much more government controlled and influenced tool. Monetary Policy Interest rates have been pre-determined Sector credit targets are defined Market has not played an influential role The monetary management may be divided into two periods pre-1991 period Post-1991 period Monetary Policy Pre- 1991 Period Pre-1991 period Before the 1991 financial sector reforms, the government’s management program was considered to be a loosely managed, highly unorganized system. In 1972, when the banking reforms were taken, a National Credit Consultative Council (NCCC) was established to determine the distribution of credit in the economy. An annual credit was and still is devised each year to determine the extent of monetary expansion for the year. The government administered all rates of return and the whole economy had to accept them. It is far to say that Money Policy prior to 1991 worked fairly well and government had pursued an economic growth strategy : By .
