Fiscal and Monetary policy

Supply side economics
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Monetary policy
Is the process by which the institution (usually central bank) influence its objectives:
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low and stable inflation rate stability of exchange rate
Absolute limits – max volume of loans that commercial banks provide to clients Relative limits – max volume of loans that commercial banks can receive from central bank
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Redistributional重新分配 (to ensure income distribution) Allocation 分配(to ensure effective resource allocation有效的资源 分配) Stability 平衡，稳定(to reduce fluctuations波动 of economic cycle)
Budget deficit预算赤字 预算赤字 Smaller budget surplus更少的预算盈余 更少的预算盈余
Contractionary 紧缩– higher taxation revenue or reduced government spending or combination of the two
Tools of monetary policy
Selective tools – selective tools, not used so often
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Liquidity rules – establishing of the structure of assets and debts of commercial banks Limits of interest – min interest rates from deposits and max interest rates from loans Limits of loans:
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Institution制定: government
Types of fiscal policy
Neutral - balanced budget
G = T (Government spending = Tax revenue)
Expansionary扩张性的,膨胀的；扩大性 – net increase in government spending, rise in government spending or fall in taxation revenue or a combination of the two
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Changes in tax rates or establishing of new taxes Changes in items项目 of government spending Changes in structure结构 of government spending Public programmes方案 and projects of employment
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Obligatory deposits – obligation of some institutions to have their accounts in central bank (e.g. state budget accounts, accounts of state funds) Recommendations, notice, gentleman’s agreement
Tools of monetary policy
Wall to wall tools – general competence (same for every institution), in accordance with the market economy基于市场
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Open-market operation – the most used tools of monetary policy, purchase or sale of bonds and stocks公开市场操作 ——最常用的货币政策工具、购买或出售债券和股票 Discount tools – loans and interest rates for commercial banks 折扣工具-贷款和利率为商业银行 Obligatory minimum reserves最小准备金 - % from deposits that commercial banks have to deposit in central bank Foreign exchange interventions 外汇的干预
Keynesian school
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dominant role主要角色 of fiscal policy when affecting economy impact on aggregate demand ⇒ product ⇒ employment stability approach to fiscal policy:
Lower budget deficit低的预算赤字 Larger surplus 大的预算盈余
Tools of fiscal policy
Automatic stabilizers自动稳定装置 – after setting 自动稳定装置 automatic impact on economy
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Expansionary fiscal policy – in the period of recession衰退, government spending increase or tax decrease ⇒ increase of aggregate demand, product, income and employment (“go” approach) Contractionary (如以抑制消费增长等方式)引起经济萎缩(或紧缩 )的fiscal policy – in the period of expansion, government spending decrease or tax increase ⇒ decrease of aggregate demand, product, income and employment (“stop” approach)
Theoretical approaches to fiscal policy
Monetarists
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1 economic cycle caused by unstability of monetary base 2 fiscal policy ineffective无效 – leading to crowding-out of private spending (firm investments) by government spending 3 requirement of low and annually年度 balanced state budget 国家预算
Expansionary fiscal policy扩张性的财政政策 GovБайду номын сангаасrnment populism平民主义 Desintegration of tax charge etc.
Real budget deficit 实际预算赤字= cyclical + structural deficit
Theoretical approaches to fiscal policy 理论上接近财政政策
Mandatory (obligatory) spending义务花费 Progressive进步的 income tax Transfer payments 转移性支付(e.g. unemployment compensation失业补偿金)
Discretional任意的 measures – one-shot measures 任意的 to realize changes in economy
Theoretical approaches to fiscal policy
Rational expectations theory合理预期
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expected fiscal policy is ineffective; however! unexpected fiscal policy is not desired, may be problematic问题。疑问 stimulation of aggregate supplylow taxes刺激总需 求, low government spending = low state budget criticism of stability function of fiscal policy批评财 政政策的稳定作用
and support of economic growth
Types of monetary policy
Expansionary – increases the total supply of money in the economy
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Used to combat unemployment in a recession by lowering interest rates通过降低利率来用于减少失 业
Structure of budget deficit
Cyclical deficit 周期赤字= passive被动 deficit, consequence of economic cycle in the period of recession衰退, consequence of the function of automatic stabilizers Structural deficit机构赤字 = active deficit, 机构赤字 consequence of government spending increase or tax decrease, reasons:
Contractionary policy – decreases the total money supply
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Used to combat inflation by raising interest rates 通过增加利率来降低通货膨胀率
Functions of central bank
Money emission发行货币 Foreign currency activities (collecting of exchange reserves, interventions on foreign exchange market) 管理外币的流动和运作 Regulations and control of bank system Bank of banks (central bank provides loans to commercial banks, receives their deposits) Bank of state (central bank manages the state accounts) Represent the state in international organizations (e.g. International Monetary Fund) Implementation of monetary policy实行货币政策
Fiscal Policy and Monetary Policy
Fiscal Policy
Refers to the government’s use of its annual budget年度预算 to achieve the government’s objectives政府目标: balanced economic growth, low unemployment rate, low and steady inflation rate, balanced balance of payment经济的稳定増长，低 失业率，低的稳定的通货膨胀率，收支平衡 Functions of fiscal policy:作用