Wednesday, January 31, 2007
All of us communicate using macro-language. It is all about macro and more macro.
When I closed my eyes, this is all I see...
1. Monetary Policy.
Five tools in monetary policy.
a) Required reserve ratio (it is set by the central bank to the commercial banks. Commercials banks have to keep a certain amount of deposits as reserve. This to facilitate withdrawals and ‘run-on-bank’)
b) Discount rate (it is the interest rate that central bank loan to the commercial banks.)
c) Open market operations (government buy/sells securities or bonds to/from the public)
d) Moral suasion (it is a request from the central bank to the commercial bank to be lenient/ stricter with the lending policies)
e) Special directives (It is an order from the central bank to the commercial bank to be lenient/ stricter with the lending policies)
2. The Fiscal Policy. (John Maynard Keynas)
a) Expansionary Fiscal Policy
Basically, this is implemented when the economy is suffering from recession. The government will spend more and decrease taxes. This is to help to improve the situation in the economy. Government will use budget deficit (G is greater than T)
b) Contractionary Fiscal Policy
This is implemented when the economy is overheated. The economy is highly inflated. Therefore, the government has to reduce spending and increase taxes. Government will use budget surplus (G is smaller T)
This is driving me nuts. I can even remember who John Maynard Keynas is. I dreamed of macro. I read nothing but macro for the past three days.
John Maynard Keynas
Adam Smith
just going crazy.
(1/31/2007 07:10:00 PM)
