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Finance Essay on Monetary and Fiscal policies
Finance & Accounting
Pages 15 (3765 words)
Running head: Monetary and fiscal policies (Student Name) (Instructor’s Name) (Course Name) 13th April 2012 Monetary and Fiscal policies Outline: Monetary and Fiscal policies Monetary policies refer to the strategies adopted by central banks to regulate money supply.
In this regard, monetary policy is important based on its fast response to address economic problems. In the same way, monetary policies are formulated and implemented by economics experts thus making it effectively match the fiscal policies adopted by governments. Two major strategies adopted by central banks to regulate money supply are contractionary and expansionary monetary policies. While contractionary policies are aimed at slowly expanding money supply, expansionary policies expand the money supply in a rapid move. The major types of monetary polices are fixed exchange rate, floating exchange rate and inflation targeting. In their effort to address inflation and deflation, central banks emulate various monetary policy tools. These include monetary base, reserve requirements, discount lending rates, exchange requirements, margin requirement, regulation of consumer credit and moral suasion. Being the regulator of exchange market, central bank has vital responsibility of determining the exchange rates. However, market forces can significantly influence the interest rates. In order to arrive at an appropriate exchange rate, central bank considers various factors that include inflation rate differences, deficits in current account as well as differences in interest rate. ...
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