Wednesday, May 22, 2013

Macroeconomics (2066Q1): What is inflation? What are the costs of inflation? How the inflation in Nepal can be controlled with monetary and fiscal policy instruments?

Monetary policy instruments

The monetary policy is the manipulation of monetary aggregates or interest rates for the purpose of achieving the macroeconomic objectives of full employment and stable prices.
The monetary policy is also the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.
  • ·        Decrease aggregate demand in the economy
  • ·        Decrease  in cost of production
  • ·        Decrease in money supply

Fiscal policy instruments

The fiscal policy is government expenditure and taxation. Changes in the level and composition of taxation and government spending can impact variables in the economy including aggregate demand and real GDP.
·        Increase govt. expenditure
·        Decrease taxation

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