Answer to Question #97738 in Macroeconomics for MAIZATUL

Question

(6) Describe the macroeconomic policies below:
1. Fiscal Policy.
2. Monetary Policy.
3. The Direct of Control.
4. The Policy of Supply-Side.

(9) Describe the intent of every inflation, explained how inflation occurs, whether the impression it causes and how to overcome it

1. cost-push inflation
2. Demand-pull inflation
3. Imported inflation

Answer 1

6.

Fiscal Policy.

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence the country's economy. It is a monetary policy strategy through which a central bank influences the money supply of a country. These two policies are used in various combinations to direct the economic goals of the country.

Monetary Policy.

Monetary policy is central bank manages the money supply. Credit, cash, checks and money market mutual funds. Monetary policy increases liquidity to create economic growth. This reduces liquidity to curb inflation. Central banks use interest rates, bank reserve requirements and the number of government bonds that banks must hold.

Direct control.

A government may choose to introduce direct control over certain prices and wages. Public sector salaries may be annual increases in public sector salaries. Some utilities, such as water bill prices, are subject to regulatory control. If there is a change in the price capping regime, it may have a short-term effect on the rate of inflation.

The Policy of Supply-Side. Supply-side policies seek to increase productivity, competition, and innovation. These are ways to control inflation in the medium term. Reduction in company taxes to encourage more investment. A reduction in taxes that increases the incentive to take risks and work - income tax reductions can be considered both fiscal and supply-side policy.

9.

Cost-push inflation 

Cost-push inflation occurs when overall prices (inflation) increase due to increases in wages and raw material costs. The high cost of production can reduce the total supply (volume of total production) in the economy. Since the demand for goods has not changed, price increases from production are passed on to consumers creating price-push inflation.

Ex. Increase vat, environment tax, carbon tax

The solution in cost-push inflation is, in the government may increase deflationary fiscal policy (higher taxes, lower spending) or monetary authority interest rates. This will increase borrowing costs and reduce consumer spending and investment.

Demand-pull inflation

Demand-pull inflation is the upward pressure on prices that follows a shortage in supply. Economists describe it as "too many dollars chasing too few goods."

Demand-pull inflation, governments, and central banks must implement a tight monetary and fiscal policy. Examples include raising interest rates or reducing government spending or raising taxes. Increase in interest rate will make consumers spend less on durable goods and housing

Imported inflation

Imported inflation is a general and sustainable price increase due to an increase in the costs of imported products. This price increase concerns the price of raw materials and all imported products or services used by companies in a country. Imported inflation is also referred to as cost inflation. Imported inflation is caused by a decline in the value of a country's currency. The more the currency depreciates on the foreign exchange market the higher the price of imports. Effectively, more money is needed to buy goods and services outside the country.