Podcast
Questions and Answers
What is the primary purpose of fiscal policy?
What is the primary purpose of fiscal policy?
- To control international trade
- To establish monetary supply
- To regulate the banking sector
- To influence macroeconomic conditions (correct)
During a recession, what fiscal action might a government take?
During a recession, what fiscal action might a government take?
- Cut infrastructure spending
- Lower tax rates (correct)
- Reduce government employment
- Increase interest rates
Which type of fiscal policy is implemented to combat inflation?
Which type of fiscal policy is implemented to combat inflation?
- Inflationary fiscal policy
- Deflationary fiscal policy
- Expansionary fiscal policy
- Contractionary fiscal policy (correct)
What are the two main types of fiscal policy?
What are the two main types of fiscal policy?
What is one of the main objectives of fiscal policy?
What is one of the main objectives of fiscal policy?
How does expansionary fiscal policy promote economic activity?
How does expansionary fiscal policy promote economic activity?
Which of the following actions is characteristic of contractionary fiscal policy?
Which of the following actions is characteristic of contractionary fiscal policy?
What effect does decreasing taxes generally have in fiscal policy?
What effect does decreasing taxes generally have in fiscal policy?
What is the primary effect of expansionary monetary policy on employment?
What is the primary effect of expansionary monetary policy on employment?
What characterizes a budget surplus?
What characterizes a budget surplus?
What does contractionary monetary policy aim to achieve?
What does contractionary monetary policy aim to achieve?
How does expansionary monetary policy typically affect interest rates?
How does expansionary monetary policy typically affect interest rates?
How is a budget deficit defined?
How is a budget deficit defined?
Which of the following is NOT an instrument of monetary policy used by central banks?
Which of the following is NOT an instrument of monetary policy used by central banks?
What is the difference between government deficit and government debt?
What is the difference between government deficit and government debt?
What typically contributes to the national debt of a government?
What typically contributes to the national debt of a government?
What is the result of increasing the money supply on domestic currency's exchange rates?
What is the result of increasing the money supply on domestic currency's exchange rates?
What percentage of total public debt in Bangladesh is made up of domestic debt?
What percentage of total public debt in Bangladesh is made up of domestic debt?
During a recession, how does expansionary monetary policy primarily affect saving behavior?
During a recession, how does expansionary monetary policy primarily affect saving behavior?
In the context of monetary policy, what does the term 'reserve requirement' refer to?
In the context of monetary policy, what does the term 'reserve requirement' refer to?
What does a government budget surplus indicate about its financial management?
What does a government budget surplus indicate about its financial management?
Which of the following is a consequence of a contractionary monetary policy?
Which of the following is a consequence of a contractionary monetary policy?
What is the equivalent amount of public sector net debt per person in the UK for the financial year ending 2023/24?
What is the equivalent amount of public sector net debt per person in the UK for the financial year ending 2023/24?
What happens to government debt when there is a persistent budget deficit?
What happens to government debt when there is a persistent budget deficit?
What is the primary purpose of a budget?
What is the primary purpose of a budget?
Which type of budget indicates that total revenues are less than total expenditures?
Which type of budget indicates that total revenues are less than total expenditures?
When must a budget be prepared in relation to its effective period?
When must a budget be prepared in relation to its effective period?
What is a common feature of budgets as described in the content?
What is a common feature of budgets as described in the content?
What does a balanced budget signify?
What does a balanced budget signify?
Which of the following is not a type of budget classified in the content?
Which of the following is not a type of budget classified in the content?
Why is ongoing budgeting important for households and corporations?
Why is ongoing budgeting important for households and corporations?
The fiscal balance is specifically the relationship between what two financial elements?
The fiscal balance is specifically the relationship between what two financial elements?
What is the primary goal of both fiscal and monetary policy?
What is the primary goal of both fiscal and monetary policy?
Which entity is responsible for setting monetary policy?
Which entity is responsible for setting monetary policy?
What typically happens when the economy grows above a certain rate?
What typically happens when the economy grows above a certain rate?
How does fiscal policy primarily influence the economy?
How does fiscal policy primarily influence the economy?
What is a possible negative consequence of contractionary fiscal policies?
What is a possible negative consequence of contractionary fiscal policies?
In what way do monetary and fiscal policies share similarities?
In what way do monetary and fiscal policies share similarities?
Which of the following accurately describes fiscal policy?
Which of the following accurately describes fiscal policy?
What is one of the key responsibilities of the Bangladesh Bank related to monetary policy?
What is one of the key responsibilities of the Bangladesh Bank related to monetary policy?
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Study Notes
Monetary Policy
- Expansionary monetary policy decreases unemployment by increasing money supply, stimulating business activity.
- Central banks regulate currency exchange rates, influencing the value of domestic currencies against foreign ones.
- Expansionary monetary policy aims to boost economic activity through increased money supply and lower interest rates.
- Contractionary monetary policy is designed to slow down economic activity, reducing money supply and increasing interest rates.
Instruments of Monetary Policy
- Central banking uses various instruments to manage the economy, including:
- Reserve Requirement
- Open Market Operations
- Interest Rates
- Selective Credit Control
Fiscal Policy
- Fiscal policy employs government spending and tax policies to influence macroeconomic factors like aggregate demand, employment, inflation, and growth.
- During recessions, government may lower taxes or increase spending to stimulate demand.
- To curb inflation, the government may raise taxes or cut spending to stabilize the economy.
Objectives of Fiscal Policy
- Maintain sustainable economic growth.
- Stabilize price levels.
- Encourage overall economic development.
- Ensure equilibrium in the balance of payments.
Types of Fiscal Policy
- Expansionary fiscal policy increases government spending and/or lowers taxes to boost economic activity during downturns.
- Contractionary fiscal policy raises taxes or reduces spending to slow economic growth when inflation is high.
Fiscal Policy vs. Monetary Policy
- Fiscal policy influences aggregate demand through taxation and spending by government, while monetary policy controls money supply and credit availability through central banks.
- Examples include the Bangladesh Bank for monetary policy and the Government of Bangladesh for fiscal policy.
- Both policies aim for a stable economic environment, addressing periods of growth and downturns.
Similarities between Fiscal and Monetary Policy
- Both policies regulate economic activity to promote stability and avoid severe fluctuations.
- Aim to create a predictable economic climate that encourages consumer confidence and investment decisions.
Budget
- A budget is an estimation of revenue and expenses for a specific timeframe, typically reviewed regularly.
- Budgets can be applied to individuals, families, governments, and organizations, classified as:
- Balanced Budget
- Surplus Budget
- Deficit Budget
Features of Budget
- Must be quantitative and prepared before the budget period, reflecting organizational objectives.
- Evaluated periodically to ensure it aligns with business goals.
Budget Deficit and Surplus
- A balanced budget occurs when total revenues equal or exceed total expenditures.
- A fiscal deficit indicates government spending surpasses revenue, while a surplus occurs when revenue exceeds spending.
- Surplus budgets usually regard effective financial operation, while deficit budgets reflect a potential financial shortfall.
Government Debt and Deficits
- Difference between deficit (annual difference in revenue vs. spending) and debt (total liabilities over time).
- For example, UK's public sector net debt was £2.69 trillion at the end of 2023/24.
- In Bangladesh, total public debt stood at US$ 155.71 billion at FY22, with a breakdown of domestic (60.73%) and external (39.27%).
Understanding Recession
- Recognizes economic downturns marked by reduced demand, employment, and GDP.
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