Professional Documents
Culture Documents
liquidity/money supply in the economy and which could also result in a relatively higher inflation
path for the economy. Examples are the lowering of policy interest rates and the reduction in
reserve requirements. Expansionary monetary policy tends to encourage economic activity as
more funds are made available for lending by banks. This, in turn, increases aggregate demand
which could eventually fuel inflation pressures in the domestic economy.
Central banks use a number of tools to shape monetary policy. Open market operations directly
affect the money supply through buying short-term government bonds (to expand money
supply) or selling them (to contract it). Benchmark interest rates, such as the LIBOR and
the Fed funds rate, affect the demand for money by raising or lowering the cost to borrowin
essence, money's price. When borrowing is cheap, firms will take on more debt to invest in
hiring and expansion; consumers will make larger, long-term purchases with cheap credit; and
savers will have more incentive to invest their money in stocks or other assets, rather than earn
very littleand perhaps lose money in real termsthrough savings accounts. Policy makers
also manage risk in the banking system by mandating the reserves that banks must keep on
hand. Higher reserve requirements put a damper on lending and rein in inflation.
While its unlikely it will replace GDP as a national indicator, it does prove a point that economic
growth can come from more than just spending.
Weve already established that consumer spending accounts for a part of GDP, albeit a smaller
role than investment, which translates into
Monetary Policies
How, then, does a company strike the right balance between being early or late? Listening
to economists, politicians, and media to get a sense of what is happening is useful. The best
route, however, is to avoid trying to predict the upturn. Instead, listen to your customers and
know your own response-time requirements.
GDP GNP
NP (Net
payment
outflow to
foreign
assets).
Application (Context in To see the strength of a countrys local economy. To see how
which these terms are the nationals
used) of a country
are doing
economically.
Layman Usage Total value of products & Services produced within the Total value of
territorial boundary of a country. Goods and
Services
produced by
all nationals
of a country
(whether
within or
outside the
country).
how to maximize their resources to be able to surpass the budgeted level of Assets
under Management.
business plan allows for development times that span the entire cycle and includes