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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
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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:
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
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
Availability of finance
Cost of finance
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:
Balance of payments
Speculation
Government policy
Money supply