Economics

Economics

The Monetary and Fiscal Policies are the ways that our economy is kept under control. Both policies have their strengths and weaknesses, some situations favouring use of both policies, but most of the time, only one is necessary. The monetary policy is the act of regulating the money supply by the Central Bank. One of the main responsibilities of the Central Bank is to regulate the money supply so as to keep production, prices, and employment stable. The Central Bank has three instruments to manipulate the money supply. They are the reserve requirement, open market operations, and the discount rate. The most powerful instrument available is the reserve requirement. The reserve requirement is the percentage of money that the bank is not allowed to loan out. If it is lowered, banks are required to keep less money, and so more money is put out into circulation. If it is raised, then banks may have to collect on some loans to meet the new reserve requirement.

The instrumen...