Difference between monetary and fiscal policy Essay Example Pdf - Free Essay Example

Sample details Pages: 8 Words: 2437 Downloads: 9 Date added: 2017/06/26 Category Economics Essay Type Compare and contrast essay Topics: Fiscal Policy Essay Monetary Policy Essay Did you like this example? Describe the difference between monetary and fiscal policy in the UK and explain how such policies can be used to achieve different macroeconomic government objectives. The main and most obvious difference between monetary and fiscal policy is that monetary policy is set by the central bank and fiscal policy is implemented by the government. In the case of the UK, monetary policy is decided upon by the Bank of England which since 1997 has been independent from the government. It would be worth considering the two types of economic policy in more detail now before turning to look at how they can be used to help meet macroeconomic government objectives. Monetary policy is the attempt to control macroeconomic variables through the setting of interest rates. It is a rather blunt policy tool as its effects can be felt throughout the economy as a whole. By changing interest rates, the Bank of England is trying to influence the overall expenditure in the economy as well as controlling inflation. Reducing interest rates makes borrowing the more attractive alternative to saving which then leads to more spending in the economy. Lowering interest rates ca n also make assets such as property increase in value which also leads to more spending as homeowners extend mortgages and consume more. By cutting interest rates, it is hoped that this increased spending feeds through to output and then to employment. Increasing interest rates on the other hand, has the opposite effect by making saving more attractive than spending and therefore overall spending in the economy is reduced. Fiscal policy is controlled by central government. It can be defined as, â€Å"a governments program with respect to (1) the purchase of goods and services and spending on transfer payments, and (2) the amount and type of tax† (Samuelson and Nordhaus, 1998). It involved the government changing levels of taxation and spending in order to influence the level of aggregate demand (AD). The purpose of fiscal policy is to reduce inflation, stimulate economic growth and to stabilise this growth and avoid periods of ‘boom and bust which characterised the e conomy during the 1980s and early 1990s. If monetary policy is described as a blunt instrument then fiscal policy is a precision tool that can target particular sectors of the economy and population in order to achieve the desired economic changes. Both these different types of policy are working towards achieving different macroeconomic objectives. It would be worth looking at these in greater detail now. There are four major macroeconomic objectives that any economic policy should be working to achieve. These are full employment; price stability; sustainable economic growth and; keeping the Balance of Payments in equilibrium. These four different objectives compete with each other and all achieve different levels of importance depending on the priorities of the government. During the 1960s, the Balance of Payments took centre stage. This was before the global economy made operating with a deficit a viable and sustainable option. Nowadays most governments operate with a budge t deficit and the balance of Payments is no longer seen as a top priority for the government. In 2007/2008 the UK government showed a deficit of  £38.7 billion which is around 2.7% of gross domestic product (GDP). The general government debt is around  £614.4 billion which is around 43.2% of GDP (ONS, 2008). In the 1960s such levels of debt would be unthinkable but now they are just part of a global reality. In order to implement social programs and fulfil spending promises, the government is forced to borrow from global institutions. This has become a global reality. These current times of economic uncertainty only increases the amount of borrowing by governments all over the world. Full employment enjoyed similar prominence in the period after the war until the 1980s. Full employment meant that more people were contributing to the economy both in terms of output and through taxation. It also meant that the government had to spend less on social programs. This full employmen t was aided by a largely industrial economy which started to decline in the 1980s. Thatcher wanted to restructure the economy to make it more efficient and move it away from its industrial base. Full employment is still an important objective and it is one that is gaining prevalence again but during this current recession it isnt a realistic prospect. The current rate of employment stands at 74.1% (ONS, 2009) which is a slight decrease on the previous year. However, as the recession deepens, it is expected that this number will fall even further. Perhaps the most two important objectives for the government at present are sustained economic growth and price stability by keeping inflation low. The government is trying to foster sustainable growth in the economy which means growth without inflation. However, the past year has seen the UK economy slip in to a recession, making any sort of growth impossible. During this recession the level of inflation has fallen but this has not tran slated into economic growth. It was hoped that that low inflation would mean that spending would increase. However, the current economic climate has seen prices fall so much that consumers are now waiting to see if prices fall even further before spending (Monaghan, 2009). This essay will now turn to look at how the use of monetary and fiscal policy can be used to achieve these macroeconomic objectives. Perhaps one of the most significant changes that the current government introduced was giving the Bank of England independence when it comes to setting interest rates. Before the government was dictating both monetary policy and fiscal policy. The Monetary Policy Committee (MPC) is now tasked with maintaining price stability and also supporting the government in meeting its objectives for growth and employment (Budd, 1998). The government still sets the goals of monetary policy but it is up to the Bank of England to decide how best to achieve this through. The independence of t he central bank is considered important for a number of reasons. Firstly, politicians are not experts when it comes to monetary policymaking. Secondly, central banks are more likely to have the interest of the country at heart rather than politicians who may be motivated by implementing populist policies for the sake of winning votes. Thirdly, politicians are unlikely to want to keep to monetary policies when they have adverse affects like high unemployment, although this wasnt the case with Thatcher. The final argument for having an independent central bank is that countries that have them tend to have lower levels of inflation (Alensina and Gatti, 1995). This essay will now look at how the MPC goes about meeting its objective of maintaining price stability. The present recession has forced the committee to consider radical solutions to the unique problems that the economy is facing. For the past year, the bank has cut interest rates on six consecutive occasions to the current r ecord low of 0.5%. It was hoped that cutting interest rates to this level would stimulate spending in the economy and that this would translate to economic growth and would keep inflation at the. However, this has not happened because the banks have stopped lending the money usually required to facilitate the spending. This has forced the Bank of England to consider other options. One such measure introduced in the past month was quantitative easing. This idea is the equivalent of printing up large amounts of money, in the case of the UK it is estimated to be about  £75 billion, and throwing it out of a helicopter so that the people below could pick it up and spend it (Elliot, 2009). This is a rather simplistic view of what the Bank of England is trying to achieve. This  £75 billion will be used to buy government bonds and corporate debt over the next three months. By exchanging these bonds for cash that the bank has printed, it is hoped that this will increase the flow of mo ney in the economy. With more cash, banks should start lending once again to other banks, businesses, and customers. This will increase spending in the economy which will lead to economic growth. However, the success of this measure rests on whether customers still want to borrow. The popular conception amongst the public is that we are in this position because we borrowed way above our means. It remains to be seen if once credit is made available again by banks whether people will take it up again. If they dont, then the banks will be awash with money that will be doing nothing and this will not lead to economic growth but rather to inflation. The Bank of England has to achieve a fine balance. It has to provide enough money to banks to encourage them to lend again at competitive rates but it also has to make sure that there isnt a surplus of money that will send inflation out of control (Kollewe, 2009). Beyond cutting interest rates and printing there is little more that monetar y policy can offer to delivering macroeconomic objectives. This essay will now look at how fiscal policy delivers macroeconomic objectives. Fiscal policy can be more fine tuned to target particular sectors of the economy and the population. It does not take the rather blanket approach taken by monetary policy. Perhaps the most effective fiscal policy to achieving macroeconomic objectives is through borrowing and taxation. For example, the government recently cut the lower starting rate of income tax. This encourages people on lower incomes to work more hours because they will be able to keep more of what they earn. This they can either spend or save, based on the level of inflation that is determined by monetary policy. Another measure introduced last year by the government was the 2.5% reduction of the rate of VAT. This was introduced at the end of last year as a way of boosting spending, especially in the run up to the busy Christmas period. However, this has not had the des ired effect on household spending which is at its lowest level since 1991 (ONS, 2009). It could be argued that fiscal policy is not as much use as monetary policy to meeting macroeconomic objectives at the present time. The government is trying to stimulate spending in the economy by borrowing more money in order to fund tax cuts and increased spending in social programs. However, the effect of this may be that people are realising that they may face a higher tax burden in the future because of this increased spending and so are saving more in anticipation of this. The government is presently pumping money into sectors of the economy that provide large numbers of jobs. For example, it has just stated that it is prepared to make up to  £2.3 billion available to car manufacturers. The Business Minister, Ian Pearson, stated that this level of investment was necessary to, â€Å"ensuring the industry comes out of the current downturn with the skills and technology needed to be c ompetitive in the global automotive market†. However, the success of this initiative again rests with the consumer. Will they want to borrow to finance things such as cars in the future? The car industry may be facing a downturn that will not recover after the recession. Because the economy is at present shrinking it means that the government is not getting as much income from tax revenues because less people are in work and those working arent getting as much. Welfare spending has had to increase to make sure that the standard of living does not fall in the UK. Those who have lost their jobs as a result of the recession have to be provided for by the state. All of this contributes to a much larger deficit which doesnt fit in with meeting macroeconomic objectives. With the global economic situation seemingly changing on an almost daily basis, it is hard to judge just how effective monetary and fiscal policies are in meeting macroeconomic objectives. It is also hard to ju dge which is the most effective way of delivering these objectives. This essay would argue that both policies are fairly weak at the moment. In order for monetary policy to work, it requires people to have the confidence to spend knowing that money is always going to be available to them. This could be just a person buying goods in the high street or a business buying services from another business. It would seem that UK consumers are willing to hold on to large quantities of money, even though the central bank has lowered interest rates to such an extent that it makes saving a very unattractive option. Consumer confidence is low, and when it is low people tend to hold on to their money rather than borrowing more. It remains to see just how effective this quantitative easing will be. In many ways it seems that fiscal policy is working against monetary policy at present in achieving macroeconomic objectives. While on the surface it seems logical for the government to be borrowing big in order to fund tax cuts and create jobs, many people see this borrowing as storing up problems for the future because all this borrowed money will have to be repaid at some point. This means that people are saving more instead of spending which the government wants us to do to meet the objective of growth in the economy. In a growing, sustainable economy, both monetary and fiscal policy should serve to benefit each other and they should work for each other in achieving macroeconomic objectives. In a receding economy such as is being witnessed in the UK, there needs to be a delicate balance struck between the two. It would seem that this balance has yet to be achieved and at present they are fighting against each other. Bibliography and References: Alensina, A. and Gatti, R. (1995). How independent should central banks be?, The American Economic Review, 85(2), 196-200. Budd, A. (1998). The Role and Operations of the Bank of England Monetary Policy Committee, The Economic Journal, 108(451), 1783-1794. Dunkley, J. (2009). UK given approval for  £2.3bn auto bail-out, The Telegraph, 28 Feb. Elliot, L. (2009). Quantitative Easing, The Guardian, 8 January. Monaghan, A. (2009). UK inflation falls to lowest in lowest in almost 50 years, The Telegraph, 17 Feb. Kollewe, J. (2009). Bank of England cuts rates to 0.5% and starts quantitative easing, The Guardian, 5 March. Moore, E. and Warwick-Ching, L. (2009). Rate cut brings more misery to savers, The Financial Times, 5 March. Office for National Statistics (ONS) (2008). UK Government Debt and Deficit [online] Available from: https://www.statistics.gov.uk/cci/nugget.asp?ID=277 [Date accessed: 10 March 2009] Office for National Statistics (ONS) (2009). Employment [online] Available from: https://www.statistics.gov.uk/cci/nugget.asp?ID=12 [Date accessed: 10 March 2009] Don’t waste time! Our writers will create an original "Difference between monetary and fiscal policy Essay Example Pdf" essay for you Create order

Iban Marriage - 1156 Words

A young man may marry at the age of twenty-two, if he is the only child in the family. If he has brothers or sisters, he is likely to marry when he grows older. A girl usually marries at the age of eighteen. At these ages young men and women generally know how to support themselves. If a young man wants to marry he may tell his parents, so that they may choose the daughter of one of their close relatives for him. If he wishes to marry a particular girl, he may tell them so, so that they may think about it in making a final decision. If they agree to their son’s choice, they will send word regarding their intention to the girl’s parents. If the boy’s request is acceptable to the parents of the girl, then the latter may fix a day for nanya†¦show more content†¦The marriage festival (melah pinang) is held in the bride’s house. 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Russians and Americans Essay Example For Students

Russians and Americans Essay Russians and AmericansAmericans often think that they have a better chance of finding a common ground with aliens from outer space than with resident aliens from Russia. Frequently Russian immigrants feel exactly the same way about their American co-workers, classmates and even spouses. A key to gaining and sustaining a mutual respect in cross-cultural relationships is an understanding of distinctive cultural norms of people from different countries. Without going too deep into historical and psychological aspects of typical Americans and Russians behaviors and traditions, let us look at a few dissimilarities between representatives of these two cultures. In Russia, children are customarily expected to stay with their parents in the same apartment or live nearby, and parents are often very upset when children move away. This closeness arises not necessarily by choice, but by deep-rooted traditions and, later on, by difficulties in getting a separate apartments. Many older people feel that several generations should still live together. Also, Russian grandmothers feel that it is their duty to raise grandchildren; in many cases they are involved in their childrens live much more than parents are and they greatly enjoy it. In the USA it is customary for the younger generation to leave home right after high school, often moving across the country to start college or a new job, and live in his or her own apartment or house. The older generation is even glad, when this move occurs, and happily builds plans for a free life that starts when children are out of the house. Traditionally, Russian men are breadwinners, and wives are house-makers and full-time mothers. After the revolution in 1917, the majority of women entered the workforce, but peoples mentality has not changed. All household duties are still considered a womans responsibility, even if she works longer hours than her husband or makes more money. Lately, in the most modern families, husbands have started t o take on more household duties, but in the majority of families, the situation remains the same as a hundred years ago. In the USA, if both spouses work outside the home, it is a norm to share responsibilities for housekeeping and for spending time with children. More so, it is quite normal for fathers in America to take care of children after work, even if their wives stay at home during the day. That is something unthinkable for a majority of Russian fathers. In Russia it is very normal to visit friends or even distant acquaintances without calling them first to anounse the visit. So Russians might misinterpret a common American offer to drop by anytime and arrive at their doorsteps around mid-night with a bottle of vodka. This is not a sign of disrespect or craziness; on the contrary, it usually means that they have taken or interpret the invitation literally, and desire to fuel (meaning to drink alcohol) the growing friendship. Furthermore, it is also quite common to arrive to ones friends house not only without an invitation or even warning, but also to bring along people completely unknown to the host. In the USA, an advance call even to close friends, for a visit, is considered a common courtesy. If people are planning a big party, they like to give their guests at least a one or two weeks notice, unless guests are very close friends then the gathering could be planned on a shorter notice. We will write a custom essay on Russians and Americans specifically for you for only $16.38 $13.9/page Order now Since grade school, Russians were raised to be modest, or at least appear as such, so talking about ones own achievements in public is considered inappropriate. Further, if somebody praised you, a sign of good upbringing would be to contradict and diminish ones praised achievements or good qualities to the point of self-deprecation. A much-made-fun-of response froma complimented woman on her dress is: this old thing- can characterize a typical response from a Russian reaction to praise. Americans, on the other hand, are brought up to put their best foot forward and make a point of informing everybody of their talents, not hesitating to abundantly praise themselves for their real achievements. Only in very rare cases would Americans tell a total lie on a job interview; they just might embellish a truth a little bit. Russian schools and universities do not have a tier system, as many US colleges do, and future employment rarely depends on grades or class standing. Russian children are not involved in such intense competition with students in their classes to be first, second, and so on, as American students are and do not mind helping out their classmates in all possible ways. Actions that are considered cheating in US schools, such as taking clues from your neighbors paper during a test, or copying somebody elses homework assignment are unacceptable to Americans but, are very common and very matter of fact for Russian students. I read an article that described American childrens reaction to a classmates cheating on a test. Middle-school students were asked what they would have done if they caught a classmate looking at his neighbors paper during a test. All children said, that they would have informed a teacher so that the cheater would have to retake the test. In Russia, such ratting on ones classmate is out of the question, and a kid whod tell a teacher about somebodys cheating would have been called a traitor and ostracized for the rest of his school life. Fu rthermore, many students would even offer to share their answers with less-knowledgeable friends during a test. .u71bfde43c40ccc9c8e89d633fdc945ef , .u71bfde43c40ccc9c8e89d633fdc945ef .postImageUrl , .u71bfde43c40ccc9c8e89d633fdc945ef .centered-text-area { min-height: 80px; position: relative; } .u71bfde43c40ccc9c8e89d633fdc945ef , .u71bfde43c40ccc9c8e89d633fdc945ef:hover , .u71bfde43c40ccc9c8e89d633fdc945ef:visited , .u71bfde43c40ccc9c8e89d633fdc945ef:active { border:0!important; } .u71bfde43c40ccc9c8e89d633fdc945ef .clearfix:after { content: ""; display: table; clear: both; } .u71bfde43c40ccc9c8e89d633fdc945ef { display: block; transition: background-color 250ms; webkit-transition: background-color 250ms; width: 100%; opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #95A5A6; } .u71bfde43c40ccc9c8e89d633fdc945ef:active , .u71bfde43c40ccc9c8e89d633fdc945ef:hover { opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #2C3E50; } .u71bfde43c40ccc9c8e89d633fdc945ef .centered-text-area { width: 100%; position: relative ; } .u71bfde43c40ccc9c8e89d633fdc945ef .ctaText { border-bottom: 0 solid #fff; color: #2980B9; font-size: 16px; font-weight: bold; margin: 0; padding: 0; text-decoration: underline; } .u71bfde43c40ccc9c8e89d633fdc945ef .postTitle { color: #FFFFFF; font-size: 16px; font-weight: 600; margin: 0; padding: 0; width: 100%; } .u71bfde43c40ccc9c8e89d633fdc945ef .ctaButton { background-color: #7F8C8D!important; color: #2980B9; border: none; border-radius: 3px; box-shadow: none; font-size: 14px; font-weight: bold; line-height: 26px; moz-border-radius: 3px; text-align: center; text-decoration: none; text-shadow: none; width: 80px; min-height: 80px; background: url(https://artscolumbia.org/wp-content/plugins/intelly-related-posts/assets/images/simple-arrow.png)no-repeat; position: absolute; right: 0; top: 0; } .u71bfde43c40ccc9c8e89d633fdc945ef:hover .ctaButton { background-color: #34495E!important; } .u71bfde43c40ccc9c8e89d633fdc945ef .centered-text { display: table; height: 80px; padding-left : 18px; top: 0; } .u71bfde43c40ccc9c8e89d633fdc945ef .u71bfde43c40ccc9c8e89d633fdc945ef-content { display: table-cell; margin: 0; padding: 0; padding-right: 108px; position: relative; vertical-align: middle; width: 100%; } .u71bfde43c40ccc9c8e89d633fdc945ef:after { content: ""; display: block; clear: both; } READ: Civil War - The Battle at Hampton Roads EssayFor the dominating majority of Americans, bribery is a forbidden way to conduct any type of business, and people would not even consider offering or accepting bribes, at least not in a pure monetary form. If the person in the USA would try to bribe a police office who stopped this person for speeding he or she most likely would be going directly to jail. In Russia, on the other hand, a tradition of bribery is deeply rooted in all levels of society, and bribes are welcomed and expected. In very many cases officials, waiting for a bribe, very creatively delay performing their duties, and frequently simply ask for it beforehand. If a person get caught for a traffic violation he or she better give a policeman money right away even if the person did not actually speed; otherwise that person might loose not only his or her license, but also, for a few days, his or her freedom. Americans mostly mind their own business when it comes to somebody elses demeanor or behavior as long as it does not directly disturb them. Russians on the other hand, especially older folks, very often make it their business to know other peoples business. They might on the length of a persnt dress or the misbehavior of a child and complement this opinion with a full lecture on appropriate clothing or upbringing of youngsters. In general, Americans are individualists and Russians are collectivists. This essay is the comparison of two great different nations, which are similar and different at the same time in our views and desires, aspirations, concerns and prejudices. It seems that Americans have much of an open mind than Rusians. Russians are very conservative. In most of cases it is difficult for them to a change in their beliefs. For the Americans freedom is good, but it is nothing without responsibility.