Vous êtes sur la page 1sur 4

COMSATS INSTITUTE OF INFORMATION TECHNOLOGY

VIRTUAL CAMPUS
ASSIGNMENT NO. 1
COURSE: Financial Decision Making
CODE: MGT 684
Submitted By: Faizan Siddique
CIIT/FA14-RBA-011/CVC

What are the government macroeconomic policies are? How these are affecting the
economy of Pakistan?
MARKS = 10
Hint: Use Internet for your help, use your observation and understanding of course content.

Instruction:
Read and understand instructions carefully and then start attempting the assignment. In order to
get good marks, following instructions should be followed while compiling your assignment
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)

Font style should Times New Roman


Font size should be 12 for normal text (paragraph) and 14 for headings
Line spacing should be 1.5
Document should be JUSTIFY aligned
You can consult your text book, reference books or internet for your assignment
Be careful with the copping as it will cause cancellation of the assignment and will be
marked zero.
Just grasp the basic concept from the book or internet and apply it in the situation of your
selected business
Your own ideas and words will be appreciated
Comprehend your idea in One A4 size page, be precise with your answer, un necessary
details will not create a positive impression
Spelling or grammatical mistakes will not be negatively marked, in order to appreciate
and acknowledge your own creative writing

Macroeconomic Policies are tools used by the Government to manage and influence
the performance and behaviour of the economy. These are important because they affect the
economy in which businesses operate.
The Key objectives of Macroeconomic policies are:

Full employment of resources (Full and Stable Employment)

Price Stability (little or no inflation putting upward pressure on price)

Economic Growth (National Income)

Balance of Payments Stability (Payment Surplus/deficit)

Appropriate distribution of Income and Wealth

To achieve these objectives can be very difficult because conflicts between macroeconomic
objectives exist. For example, the achievement of full employment may lead to excessive
inflation because of the increase of level of aggregate demand within an economy.
Macroeconomic policies can influence the economy and businesses through three instruments
monetary policies, fiscal policies and exchange rates.
Fiscal policies
The government can manipulate budgets to influence the level of aggregate demand and activity
in the economy and this refers to fiscal policies. It covers:

Government Spending

Taxation (Direct and Indirect Taxes)

Government Borrowing (illiquid debt National Savings certificates or liquid debt


Treasury bills)

The role of the Chancellor of the Exchequer in the UK is to balance the budget in two
circumstances:
1. Deficit- Additional spending financed through borrowings

2. Surplus- Spare funds use to pay off public debts


The two key issues with fiscal policies are crowding out and incentive effects of
taxation.Financial crowding out refers to Government borrowings leading to a fall in private
investmentbecause high interest creates a greater demand for money & loanable funds. The
private sector due to its sensitivity to interest rates will reduce investments because of lower
returns which will impact the economy.
The incentive effects of taxation refer to the specific effects of taxation having an adverse impact
on the economy. For example, the employer national insurance (NI) payments raise the cost of
labour which also reduces employment in particular for small businesses.
Monetary policies
Monetary policy is used to influence the rate of interest and the money supply in an economy.
Monetary policies impact:

Availability of finance

Cost of finance

Level of consumer demand

Level of exchange rates

Level of inflation

The Government is careful when changing interest rates as the effects are uncertain. For example
if interest rates were raised, this would discourage expenditure due to the rise in cost of credit.
However effects will vary because they might affect some sectors of business greater than others
because credit-based purchases are typically consumer durable goods and houses, this may result
in instability in some sectors.
Exchange Rates
Exchange rates are one countrys currency in exchange for another countrys currency. Exchange
rates are determined by supply and demand. If the demand of the increases, its price rises
and vice versa. The demand and supply of a currency can be affected by:

Comparative inflation rates

Comparative interest rates

Balance of payments

Speculation

Government policy

Current level of output in economy

Money supply

Vous aimerez peut-être aussi