Monetary and Fiscal Policy Essay Example for Free

Monetary and Fiscal Policy Essay 1. Monetary and fiscal policy and its impact on business decision making 2. Open economy macroeconomics-Mundell –Fleming Model and its application FISCAL AND MONETARY POLICY IN INDIA AND ITS IMPACT ON Business Decision Making. What is monetary policy? Monetary policy is the management of money supply and interest by central banks to influence prices and employment. Monetary policy works through expansion or contraction of investment consumption expenditure. Monetary policy is the process by which the government, central bank (RBI in India), or monetary authority of a country controls 1. The supply of money 2. Availability of money 3. Cost of money or the rate of interest, in order to attain a set of objective oriented towards the growth and stability of the economy. Monetary theory provides insight into how to craft optimal monetary policy. Monetary policy is referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates in order to combat inflation. Monetary policy is contrasted with fiscal policy, which refers to government borrowing, spending and taxation Why it is needed? What monetary policy – at its best – can deliver is low and stable inflation, and thereby reduces the volatility of the business cycle. When inflationary pressures build up, it is monetary policy only which raises the short-term interest rate (the policy rate), which raises real rates across the economy and squeezes consumption and investment. The pain is not concentrated at a few points, as is the case with government interventions in commodity markets. Monetary policy in India underwent significant changes in the 1990sas the Indian Economy became increasing open and financial sector reforms were put in place. In the 1980s, monetary policy was geared towards controlling the quantum, cost and directions of credit flow in the economy. The quantity variables dominated as the transmission Channel of monetary policy. Reforms during the 1990s enhanced the sensitivity of price signals from the central bank, making interestrates the increasingly Dominant transmission channel o f monetary policy in India. WHEN WERE MONETARY POLICIES INTRODUCED? Monetary policy is primarily associated with interest rate and credit. For many centuries there were only two forms of monetary policy: (i) Decisions about coinage (ii)Decisions to print paper money to create credit. Interest rates, while now thought of as part of monetary authority, were not generally coordinated with the other forms of monetary policy during this time. Monetary policy was seen as an executive decision, and was generally in the hands of the authority with seignior age, or the power to coin. With the advent of larger trading networks came the ability to set the price between gold and silver, and the price of the local currency to foreign currencies. This official price could be enforced by law, even if it varied from the market price. With the creation of the Bank of England in 1694, which acquired their responsibility to print notes and back them with gold, the idea of monetary policy as independent of executive action began to be established. The goal of monetary policy was to maintain the value of the coinage, print notes which would trade at par to specie, and prevent coins from leaving circulation. The establishment of central banks by industrializing nations was associated then with the desire to maintain the nations peg to the gold standard, and to trade in an arrow band with other gold-backed currencies. To accomplish this end, central banks as part of the gold standard began setting the interest rates that they charged, both their own borrowers, and other banks that required liquidity. The maintenance of a gold standard required almost monthly adjustment of interest rates. During the 1870-1920 periods the industrialized nations set up central banking systems, with one of the last being the Federal Reserve in1913.By this point the role of the central bank as the lender of last resort was understood. It was also increasingly understood that interest rates had an effect on the entire economy, in no small part because of the marginal revolution in economics, which focused on how many more, or how many fewer, people would make a decision based on a change in the economic trade-offs. It also became clear that there was a business cycle, and economic theory began understanding the relationship of interest rates to that cycle.(Nevertheless, steering a whole economy by influencing the intere st rate has often been described as trying to steer an oil tanker with a canoe paddle.) Research by Cass Business School has also suggested that perhaps it is the central bank policies of expansionary and contractionary Policies that are causing the economic cycle; evidence can be found by looking at the lack of cycles in economies before central banking policies existed. OBJECTIVES OF MONETARY POLICY The objectives are to maintain price stability and ensure adequate flow of credit to the productive sectors of the economy. Stability for the national currency (after looking at prevailing economic conditions), growth in employment and income are also looked into. The monetary policy affects the real sector through long and variable periods while the financial markets are also impacted through short-term implications. There are four main channels which the RBI looks at: †¢Quantum channel: money supply and credit (affects real output and price level through changes in reserves money, money supply and credit aggregates). †¢Interest rate channel. †¢Exchange rate channel (linked to the currency). †¢Asset price. Monetary decisions today take into account a wider range of factors, such as: †¢short term interest rates; †¢long term interest rates; †¢velocity of money through the economy; †¢exchange rate †¢credit quality †¢bonds and equities (corporate ownership and debt) †¢government versus private sector spending/savings * International capital flow of money on large scale * Financial derivatives such as option, swaps and future contracts etc. Types of monetary policy: In practice, all types of monetary policy involve modifying the of base currency (MO) in circulation. This process of changing liquidity of base currency through the open sales and purchase (government-issued) debt and credit instrument is called open market operation. Constant market transactions by the monetary authority modify the supply of currency and this impacts other markets variables such as short term interest rates and the exchange rates. The distinction between the various types of monetary policy lies primarily with the set of instruments and target variables that are used by the monetary authority to achieve their goals. A fixed exchange rate is also an exchange rate regime; The Gold standard results in a relatively fixed regime towards the currency of other countries on the gold standard and a floating regime towards those that are not. Targeting inflation, the price level or other monetary aggregates implies floating exchange rate unless the management of the relevant foreign currencies is tracking the exact same variables (such as a harmonized consumer price index).Inflation targeting Under this policy approach the target is to keep inflation, under particular definition such as Consumer Price Index, within a desired range. The inflation target is achieved through periodic adjustments to the Central Bank interest rate target. The interest rate used is generally the interbank rate at which banks lend to each other overnight for cash flow purposes. Depending on the country this particular interest rate might be called the cash rate or something similar. The interest rate target is maintained for a s pecific duration using open market operations. Typically the duration that the interest rate target is kept constant will vary between months and years. This interest rate target is usually reviewed on a monthly or quarterly basis by a policy committee Price level targeting Price level targeting is similar to inflation targeting except that CPI growth in one year is offset in subsequent years such that over time the price level on aggregate does not move. Something similar to price level targeting was tried by Sweden in the1930s, and seems to have contributed to the relatively good performance of the Swedish economy during the Great Depression. As of 2004, no country operates monetary policy based on a price level target. Monetary aggregates In the 1980s, several countries used an approach based on a constant growth in the money supply. This approach was refined to include different classes of money and credit (M0, M1 etc). In the USA this approach to monetary policy was discontinued with the selection of Alan Greenspan as Fed Chairman. This approach is also sometimes called monetarism. While most monetary policy focuses on a price s ignal of one form or another, this approach is focused on monetary quantities. Fixed exchange rate this policy is based on maintaining a fixed exchange rate with a foreign currency. There are varying degrees of fixed exchange rates, which can be ranked in relation to how rigid the fixed exchange rate is with the anchor nation. Under a system of fiat fixed rates, the local government or monetary authority declares a fixed exchange rate but does not actively buy or sell currency to maintain the rate. Instead, the rate is enforced by non-convertibility measures (e.g. capital controls, import/export licenses, etc.). In this case there is a black market exchange rate where the currency trades at its market/unofficial rate. Under a system of fixed-convertibility, currency is bought and sold by the central bank or monetary authority on a daily basis to achieve the target exchange rate. This target rate may be a fixed level or a fixed band within which the exchange rate may fluctuate until the monetary authority intervenes to buy or sell as necessary to maintain the ex change rate within the band. (In this case, the fixed exchange rate with a fixed level can be seen as a special case of the fixed exchange rate with bands where the bands are set to zero.) Under a system of fixed exchange rates maintained by a currency board every unit of local currency must be backed by a unit of foreign currency (correcting for the exchange rate). This ensures that the local monetary base does not inflate without being backed by hard currency and eliminates any worries about a run on the local currency by those wishing to convert the local currency to the hard (anchor) currency. These policies often abdicate monetary policy to the foreign monetary authority or government as monetary policy in the pegging nation must align with monetary policy in the anchor nation to maintain the exchange rate. The degree to which local monetary policy becomes dependent on the anchor nation depends on factors such as capital mobility, openness, credit channels and other economic factors Gold standard The gold standard is a system in which the price of the national currency as measured in units of gold bars and is kept constant by the daily buying and selling of base currency to other countries and nationals. (I.e. open market operations cf. above). The selling of gold is very important for economic growth and stability. The gold standard might be regarded as a special case of the Fixed Exchange Rate policy. And the gold price might be regarded as a special type of Commodity Price Index . Today this type of monetary policy is not used anywhere in the world, although a form of gold standard was used widely across the world prior to 1971. For details see the Breton Woods system. Its major advantages were simplicity and transparency. Monetary policy tools monetary base monetary policy can be implemented by changing the size of the monetary base. This directly changes the total amount of money circulating in the economy. A central bank can use open market operations to change the monetary base. The central bank would buy/sell bonds in exchange for hard currency. When the central bank disburses/collects this hard currency payment, it alters the amount of currency in the economy, thus altering the monetary base. . Monetary policy in different years The monetarist statistical regularities have weakened for the 1970-90 period, in comparison with the 1960-79 where the influence of current and past business activity on the money supply were weak, while the predictive value of changes in the money stock for future output was large National income and saving play vital role on formulation of monetary policy. As the income increases the spending will also increase, thus monetary will be less intensively required and same is the case with increase in saving .chart shows how the finance systems generate the real money and nominal money .The existence of long-run equilibrium relationship among money and income represented by a money demand function also has significant implications for monetary policy. The kind of economy India has, it is effected by the dollar rate .India has Services led growth is getting reinforced by a sustained resurgence in industrial activity after a long hiatus of slow down and restructuring during the period 1976-1987.Thus India contribute much too the imports and exports, thus it have impacted by dollar price.

Wars - The Results Lead to Further Conflicts :: World History

Wars - The Results Lead to Further Conflicts During the twentieth century, conclusions of wars created the conditions for subsequent wars. Whether it was the conquered or the conqueror, few ever remain content past an initial truce. Two examples of this can be found in the events that lead up to WWII and the constant conflict in the Middle East. The conclusion and consequences of World War I created many issues, which helped intensify World War II. The Treaty of Versailles, which outlined the restitutions Germany was to pay, was a major upset for the German people. Even though Germany lost the war, the German people's sense of nationalism was still alive and sections of the Treaty, such as Article 231 (the War Guilt Clause), fueled German anger. German economy was destroyed due to heavy reparations payments. The onslaught of the American Stock Market Crash caused a German depression. German resentment over the Treaty of Versailles stayed with the people for years until Adolf Hitler played upon the people's anger. Hitler's machinations eventually lead into WWII. Another outcome of WWI was the creation of The League of Nations. The victors of WWI wanted to implement a system of collective security, designed to resolve future conflicts using peaceful methods. Unfortunately, the League proved ineffective, which prompted leaders such as Benito Mussolini and Adolf Hitler to take aggressive action against their enemies. In 1936, civil unrest in Spain erupted into a war that further encouraged the beginning of WWII. Countries such as Germany, Italy and USSR lent their support without hesitation, whereas Britain, France and the US did not. This gave Germany and the USSR the impression that Britain and France were weak militarily and could be easily subdued. To many, this war was considered a training ground for Germany to test military tactics that would be used in WWII. During WWII, the US and USSR were forced to band together to defeat their common enemy, Hitler. This alliance foreshadowed post-war tensions, as there were disagreements over wartime strategy. Issues such as the Polish Question, spheres of influence, the Berlin Blockade/Airlift, NATO and the Marshall Plan, which were ultimately about communism vs. democracy, lead to military conflicts such as the Korean War, the Vietnam War and the Cuban Missile Crisis. In the Middle East, tensions between Jews and Arabs have been present since biblical times. When the Jewish state of Israel was created in 1948 in the Arab homeland of Palestine, severe unrest emerged between the two groups and the Palestinian War began.

Freedom of Speech Essay

Originally rap music has been around since 1926 and was not as popular back then as it is now. Teenagers to adults listen to an average of two point five (2.5) maybe three (3) hours of music per day. Study shown in 1 of 3 of the songs played contains explicit language and reference to drugs alcohol or women. Ice Cube’s album entitled ‘Death Certificate’ sends messages that bluntly and descriptively threatens violence against homosexuals, women, whites who exploit blacks, whites who covet black women, Korean shopkeepers and police officers. Jon Pareles who wrote the article, ‘Should Ice Cube Voice be Chilled? ’argues from several different point of views on why Cube’s album should not be sold. The article also argues that his voice should be chilled because of violent lyrics and threats towards which it addresses. Jon Pareles made his argument by simply using different responses and groups to show why the album should not be sold and should be edited. For example, the Simon Wiesenthal Center is Jewish human rights group who demanded four major record stores chains to cease in selling the album. The called it ‘cultural Molotov cocktail’. After listening to it, the Center realizes how quickly this album is going to explode in the minds and ears of young and old listeners. Another example was ‘Black Korea’ which according to Ice Cube meant Korean shopkeepers who follow the customer throughout the store to ensure they do not steal. This section of the album did not just scratched below the surface but stirred a nationwide boycott. The Korean- American Coalition did not take this lightly, they condemned and deleted it. In an editorial review, a response by James Bernard favored censoring the lyrics because some people are too thin-skinned. Also, Mr. Bernard knew that these types of issue people are force to face on a day to day basis. Why did Ice Cube use such blunt and threatening lyrics? Ice Cube was born and raised in an area polluted with crime, violence and where trust was hidden underground. His inappropriate reactions and vengeance was all towards how he and his people were treated (bullied). Pareles describes this reaction of one that is simplistic and ugly because, this would not eradicate the problem but cause an escalation. The clear message of this album caught enough attention by the media and organizations to determine whether or not ‘Death Certificate’ should be heard at all. The question remains unanswered to curious critics, why are people buying ‘Death Certificate’. Some just savor the action like movie imagery that Ice Cube presents. His gift of violence attracts his listeners to buy the album. Ice Cube lyrics did have some effects on young listeners during the recession; gang involvement disillusioned. However, the majority of the listeners will just play loud music. Jon Pareles produced strong points from many different organizations, groups and individual views on why the album should be terminated. The writer never once critized Ice Cube but spectated his album as a whole. On the other hand, Pareles also agree that although Ice Cube does not have the most positive thinking, he has a right to be heard, but he is going to have to answer and be challenged for his thinking and decisions.

Character Analysis Of Night In Night By Elie Wiesel

Have you ever changed or have the people around you changed out of survival? People who survived the holocaust changed because of what they went through so they could survive. Just like Elie he survived Auschwitz and he will never be the same person he was before the concentration camps. In â€Å"Night† by Elie Wiesel, the main character, Elie developed into a new person through his experiences at Auschwitz Concentration Camp and survived. Before he was exiled to a concentration camp, Elie exhibited some character traits that he has had from day 1, such as he felt guilty, disciplined, and a great listener. As Elie stated in his book, â€Å" He wanted to drive the idea of studying Kabbalah from my mind. In vain. I succeeded on my own finding a†¦show more content†¦He was raised to listen, be respectful, be a great listener and more, which is all a part of being disciplined. Not only was he disciplined, but a great listener, and he felt guilty also, he never let go of these character traits throughout the book. Elie has lots of character traits that helped him get through Auschwitz, such as resourceful, traitor, and determined. In Night, Elie states â€Å"I went back a week later. With the same excuse: I still was not feeling better† (52). Elie came up with excuses to get out of getting his gold crown out. He got resourceful and came up with the idea to keep making an excuse that he was not feeling well, until they got a new doctor and he got to keep his gold crown. He used what he already had to get more out of people later and use his tooth as an advantage. Not only was he resourceful but he was also a traitor. Elie just let his father die and his father was still breathing yet he didn’t move.â€Å"My father groaned once more, I heard: ‘Eliezer†¦Ã¢â‚¬â„¢ I could see that he was still breathing- in gaps. I didn’t move† (Wisel 111). He just let his father died and didn’t even try to help him and he died and his last words were â€Å"Eliezerâ₠¬ ¦Ã¢â‚¬ , but he is thinking for his own future and if he will live or not. He betrayed and was a traitor to his father and didn’t even say goodbye. He was also very determined on living as said by Elie in the expert from his book, â€Å"‘Listen to me, kid. Don’t forget you are in aShow MoreRelatedCharacter Analysis Of Night In Night By Elie Wiesel1053 Words   |  5 Pagessometimes you don’t even fear this happening. In the book Night the author Elie Wiesel takes the reader to a place in time that they wouldn‘t ever want to be; a place with terrifying experiences were the usually. All of these awful experiences, during the Holocaust, truly changed Elie as a character. Before, Elie was sent off to a concentration camp he had many good character traits. For example, Wiesel states on page 109, it speaks of Elie being caring. â€Å"‘Eliezer...Eliezer†¦ tell them not to beatRead MoreCharacter Analysis Of Night In Night By Elie Wiesel920 Words   |  4 Pagesfrom happening ever again. For Elie Wiesel, this is especially true, after he survived he went on to write the book â€Å"Night†, this book has really helped people to understand what truly happened and to gain respect for the survivors; he also went on to win a number of awards, including the nobel peace prize. In the book â€Å"Night† by Elie Wiesel, our main character, Elie, changes through the traumatizing events he experienced in Auschwitz. In the first place, before Elie went to Auschwitz, he displayedRead MoreNight By Elie Wiesel Character Analysis849 Words   |  4 Pagesoccurred, yet it is known worldwide for sourcing millions of deaths. Elie Wiesel was among the many victims of the Holocaust, and one of the few survivors. In the memoir, â€Å"Night†, by Elie Wiesel, Elie, the main character, is forever changed because of his traumatic experiences in the Auschwitz concentration camps. Prior to Auschwitz, Elie displayed many positive character traits, such as confidence, curiosity, and self care. Elie wrote about news from the Russian Front by claiming that â€Å"There couldRead MoreNight By Elie Wiesel Character Analysis1455 Words   |  6 Pagesmemoir, Night, Elie Wiesel recalls his experiences with his family during World War II. After he first arrives at Auschwitz, Elie Wiesel’s mother and sisters are taken away from him. His father is suddenly all that remains of his family. Elie Wiesel witnesses many other terrible events during his first night at camp; the only thing that keeps him sane is his father. Elie Wiesel’s father even keeps him from rebelling and possibly getting himself killed before the Germans intended. When Wiesel livesRead MoreCharacter Analysis In Night By Elie Wiesel1011 Words   |  5 Pagessuffering seemed the right thing to do to people. Elie Wiesel was a victim of the torture and suffering by the Germans, in his book Nigh t, and spoke up when he survived. In the book Night by Elie Wiesel, the main character, Elie, was a really good person and showed many positive traits, but when he was sent to the infamous death camp, Auschwitz, that forced him to change his character. Before Elie went to Auschwitz, he exhibited many positive character traits. (Such as Compassion, Depressed, and FriendlyRead MoreNight Trilogy By Elie Wiesel1075 Words   |  5 Pages14 10 June 2015 Night Trilogy Criticism Elie Wiesel’s Night Trilogy is comprised of an autobiography about Wiesel’s experience during the Holocaust and the horrific struggle he faced while in concentration camps, and two other stories depicting the rise of Israel and an accident. The acclaimed Holocaust writer is most well-known for Night due to its effect across the globe. Dawn and Day are not autobiographies, yet they have lingering presences of Wiesel in the main characters and narrators. HeRead More Dawn by Elie Wiesel Essay716 Words   |  3 PagesDawn by Elie Wiesel In this report you will see the comparisons between the novel Dawn and the life of Elie Wiesel, its author. The comparisons are very visible once you learn about Elie Wiesel’s life. Elie Wiesel was born on September28,1928 in the town of Hungary. Wiesel went through a lot of hard times as a youngster. In 1944, Wiesel was deported by the nazis and taken to the concentration camps. His family was sent to the town of Auschwitz. The father, mother, and sister of Wiesel died inRead MoreNight: Heart-Wrenching and Traumatic Themes1189 Words   |  5 Pagesnovel, Night, by Elie Wiesel, contains heart-wrenching as well as traumatic themes. The novel unfolds through the eyes of a Jewish boy named Eliezer, who incurs the true satanic nature of the Nazis. As the Nazis continue to commit inhumane acts of discrimination, three powerful themes arise: religion, night, and memory. As the novel begins to unfold, Anti-Semitism does as well. As Wiesel demonstrates in the novel, â€Å"Three days later, a new decree: Every Jew had to wear the yellow star.† (Wiesel, 11)Read MorePerseverance Analysis. Many People Suffer Problemsin The1228 Words   |  5 PagesPerseverance Analysis Many people suffer problems in the world today. This includes terrorism and tyranny. It includes kidnapping and hate crime. It can also be cancer and starvation. Many have lived through problems like these and told the tale because they persevered. Through Hillenbrand’s Unbroken, Wiesel’s Night, and Lee’s To Kill a Mockingbird, perseverance is emphasized the readers by writing about characters, whether they are survivors of the Holocaust, a prisoner of war, or familyRead MoreSummary Of Night Double Entry Journal 1329 Words   |  6 Pages Ms. Williams 9-2-14 English 11 Honors – 4 Night Double Entry Journal I. Write one important quote from each chapter with the page number and explain its significance to the plot of the novel. Think about why that quote was particularly significant within the plot and to the main characters. Text from Night My Response/Analysis Chapter 1: †As far as I’m concerned, this whole business of deportation is nothing but a big farce. Don’t laugh. They just want to steal our valuables and jewelry. They