SUMMARY OF MONETARY POLICY

ECONOMICS 101

Report

PREPARED TO:

Mr. Jun Piong

Prepared by:

Basul, Ma.Sharon Ann

Raboy, Jean Kennith

Cuadrasal

Prima

AC-201
 MONETARY AND FISCAL POLICY

Is one of the Main types of government macroeconomic policy. It can

be defined as the measures or actions taken by the central bank using
all of its tools in order to regulate the money supply thus influencing
the overall level of economic activities.

CENTRAL BANK AND BANGKO SENTRAL NG PILIPINAS

CENTRAL NG PILIPINAS is the central monetary authority which

provides monetary policy directions that cover the areas of money,
credit, and banking.

Bangko sentral ng pilipinas- the primary mandate of the BSP is “to

promote price stability conducive to a balanced and sustainable growth
of the economy” there are 3 main areas or pillars to carry out its
mandate

1. Price stability refers to the condition of low and stable inflation rate

.2. Financial Stability-BSP makes sure that financial institutions ( bank

and nonbank) follow the prudential rules and regulations.

3. Efficient Payments and Settlements System- BSP guarantees that the

settlement of financial transactions of the general public is safe, timely,
and accurate.
MONETARY POLICY FRAMEWORKS

The monetary policy has three frameworks that can be adopted by the
Central Bank of the country to achieve the desired level of inflation rate
and thus affecting the level of economic growth.

1. Monetary Aggregate Targeting-is an approach to monetary policy

undertaken by central banks that aims to influence the behavior
of monetary aggregates.
2. Interest Rate Targeting-involves the actions of the central bank
that affect the targeted level of interest rate.
3. Inflation Targeting-involves the announcement of an explicit
inflation target that the central bank promises to achieve over a
given time period.

MONETARY POLICCY TOOLS

1. BSP’s POLICY INTEREST RATE- these policy interest rates are

used by the BSP when it lends or borrows to or from banks
with government securities as collateral.
2. RESERVE REQUIREMENT-refers to the mandatory proportion of
the deposits and deposit substitute liabilities of the banks that
they hold as reserves.
3. SPECIAL DEPOSIT ACCOUNT FACILITY- allows banks and trust
entities of BSP-supervised financial institutions to have fixed-
terme deposits with the BSP.
4. REDISCOUNT RATE-is the interest rate that BSP uses when it
lends money to a financial institution.
 5. OPEN MARKET OPERATION-involves the outright sale or
purchase of government securities by the BSP.

MONETARY POLICY STANCE

1. Expansionary monetary policy is a monetary policy stance that

intends to increase the level of money supply in the economy.
2. Contractionary monetary policy is a monetary policy stance that
aims to decrease the level of money supply in the economy.

FISCAL POLICY

Refers to the government actions that affect total government

spending activities, tax rates and tax revenues, or the government
budget deficit. Most government spending and taxation are
determined by factors that are totally unrelated to fiscal policy.

TYPES OF FISCAL POLICY

Governments spend money and collect taxes on a continuous basis;

whether intended or not, their spending activities and taxing actions
affect aggregate demand. Many fiscal policy actions take place
atomically and require no policy decisions on the part of the
government programs, such as the Government Insurance and
Social Service (GSIS) and Social Security Services (SS) which refer to
the unemployment-compensation payments.
2 types of policys

1. Automatic stabilizers are government spending or taxation actions

that take place without any deliberate government control and
that tend to automatically dampen the business cycle.
2. Discretionary fiscal policies are government spending and
taxation actions that have been deliberately taken to achieve
specified macroeconomics.

COMPONENTS OF FISCAL POLICY

1. TAXATION most important generating measure of the

government. It has been considered one of the three
fundamental powers of the state ( the other two are police
power and eminent domain).
2. Government borrowing- borrowings play a central roles in
the fiscal policy of the government due to the deficiency of its
local and national tax collection.
3. Government spending- is the government fiscal arm
producing, allocating, and distributing social goods and
services.
 STANCES OF FISCAL POLICY

Three possible stances:

1. Neutral- implies a balanced economy which is results in
large tax.
2. Expansionary – involves government spending exceeding
tax revenue.
3. Contractionary-occurs when government spending is lower
than tax revenue.

FISCAL POLICY OF THE PHILIPPINES

Is characteristic by continuous and increasing level of dept and budget

deficit. During the time of President Marcos was primarily focused on
indirect tax collection and on government spending on economic
services and infrastructure development. The tax system during
marcos administration was generally regressive as it relied a great
deal on indirect taxes.