Fiscal and Monetary Policy and Issues INTRODUCTION One major function of the government is to stabilize the economy (prevent unemployment or inflation) Stabilization can be achieved in part by manipulating the public budget- government spending and tax collections- to increase output and employment or to reduce inflation. FISCAL POLICY refers to the measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures is the use of government expenditure and revenue collection to influence the economy. is used by the governments to influence the level of aggregate demand in the economy, in an effort to achieve economic objectives of price stability, full employment and economic growth.
Objectives of Fiscal Policy Removal of unemployment -increases govt. expenditure and reduces taxes. Maintenance of economic development- increase the rate of capital formation Maintenance of price stability- reduce aggregate demand by reducing exp.and increasing direct and indirect taxes. Reduction in economic inequality- more taxes on rich
History Fiscal Policy (from different administration) Marcos Admin. - primarily focused on indirect tax collection and on government spending on economic services and infrastructure development. Aquino Admin. - a large fiscal deficit from the previous administration, but managed to reduce fiscal imbalance and improve tax collection through the introduction of the 1986 Tax Reform Program and the value added tax.
Ramos Admin - experienced budget surpluses due to substantial gains from the massive sale of government assets and strong foreign investment in its early years. However, the implementation of the 1997 Comprehensive Tax Reform Program and the onset of the Asian financial crisis to a deteriorating fiscal position in the succeeding years and administrations. Estrada Admin - faced a large fiscal deficit due to the decrease in tax effort and the repayment of the Ramos administrations debt to contractors and suppliers. Arroyo Admin. - the Expanded Value Added Tax Law was enacted, national debt-to-GDP ratio peaked, and underspending on public infrastructure and other capital expenditures was observed.
Monetary Policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest to attain a set of objectives oriented towards the growth and stability of the economy. is one of the tools that a national government uses to influence its economy. Using its monetary authority to control the supply and availability of money, a government attempts to influence the overall level of economic activity
is a tool used by the central bank to manage money supply in the economy in order to achieve a desirable growth . The central bank controls the money supply by increasing and decreasing the cost of money, the rate of interest.
Objectives of Monetary Policy
Economic growth -increase capital formation Exchange stability -stability of balance of payment Full employement -increase production Price stability - to eradicate inflation and deflation.
Credit control -increase and decrease interest rates Reduction in economic inequalities - distribution of income and wealth.
The Bangko Sentral ng Pilipinas or BSP the central monetary authority of the republic of the Philippines. It provides policy directions in the areas of money, banking and credit and exists to supervise operations of banks and exercises regulatory powers over non-bank financial institution.
It keeps aggregate demand from growing rapidly with resulting high inflation, or from growing too slowly, resulting in high unemployment.
primary objective of BSP's monetary policy is to promote price stability because it has the sole ability to influence the amount of money circulating in the economy. Main Source Of Revenue in the Philippines Taxes Non-tax revenue Domestic Sources External Sources