Fiscal Policy

When the government change the level of taxation and/or th level of government
spending to promote echievement of macroeconomic objective.
Objective of Macroeconomics


Low Inflation
Stable Price
Full employment
Economic growth

Influence Aggregate Demand

of government spending
of taxation

Instrument of Fiscal Policy

Public Revenue (taxes)
Public Borrowing(loans)
Public Expenditures
Problem of Fiscal Policy
 It takes time—delay
 Problem in tax Policy
 Inefficient and corrupt administration

Expansionary Fiscal Policy
Is the increaseof government spending and decrease of taxation. This is use to
stabilize economy during recession.
Contractionary Policy
Reduce thw supply and demand in the economy by increasing the the taxation
and decreasing the government spending.
Fiscal Policy Multiplier
 Marginal Propensity to consume (MPC) = change in consumption
change in output
 Marginal Propensity to Save (MPS)= = change in saving
change in output

lower fixed-rate bond prices higher fixed-rate bond prices higher fixed-rate bond yields interest rates Higher market interest rates Lower market interest rates lower fixed-rate bond prices Higher market Investment Money committed or property acquired for future income. and some demand or current accounts. the then Central Bank of the Philippines deregulated all bank rates except short-term lending rates. preference shares. In 1981.Interest rates Is the cost of borrowing (or the return from lending) express as percent per year are among the most closely watched variables in the economy. In 1983. the level of interest rates is determined by the interaction of the supply and demand for funds in the money market. and (2) Variable income investment such as business ownership (equities). Return on investment (ROI) is a key measure of an organization's performance. . Interest rates differ. fixed deposits. and long-term (more than five years). the deregulation of bank rates was completed with the removal of the remaining ceilings on short-term lending rates. prior to their full liberalization in 1983. depending on the type of instruments (e. Two main classes of investment are (1) Fixed income investment such as bonds. Interest rates. Expenditure on education and health is recognized as an investment in human capital. and investment instruments like bonds. In economics. investment means creation of capital or goods capable of producing other goods or services. time deposit. traditional deposit instruments like savings deposit. medium-term (more than one year but less than five years). How are interest rates determined? Today. 2. securities) and on the tenor of investment.  The concept known as yield to maturity (YTM) is the most accurate measure of interest rates How are interest rates classified? The interest rates charged on borrowed funds are generally classified according to the tenor or the maturity period: short-term (less than one year). . and research and development in intellectual capital.g.. or property ownership. were fixed by the Bangko Sentral ng Pilipinas (BSP).

stand to make a profit. Generally. A money market fund is really a type of lending investment. Ownership investments include: Lending Investments With lending investments.A business investment (BI) is defined as the money spent on creating. Ownership Investments When you buy an ownership investment. Cash equivalents are investments that are "as good as cash. hence. but the return is so low. . Cash Equivalents Generally. you buy a debt that's expected to be repaid. This means they're thought to be a safer investment." as Investopedia puts it. It might be a money market fund. low-reward investments. You're sort of like a bank. you own that asset—something that's expected to increase in value. running or expanding a business with the expectations of future returns. these are low-risk. developing. but their return is usually low. a smaller percentage of your portfolio with be made up of cash. it's considered to be a cash-equivalent investment. A prerequisite for something to be considered a business investment is that you have some ownership of the business and. This might be a simple savings account.