Role of monetary and fiscal policy

Relation between managerial

economics and macro economics.
The decisions of management are related to the whole of the social
system.
A possible change in the forecast of the progress of the macro-economy
can result in the need for the managemental decision-making to re-
align with it.

Macroeconomics as the name suggests is
the study of the overall economy and its aggregates such as Gross
National
Product, Inflation, Unemployment, Exports, Imports, Taxation
Policy etc.
Macroeconomics addresses questions about changes in
investment, government
spending, employment, prices, exchange rate of the rupee and so
on.
Business manager and economic
terms
GDP growth rate could impact the product a
manager is marketing.
Change in money supply by the RBI could impact
inflation and thus influence the demand of the
managers product.
fiscal deficit could affect interest rates and
therefore investment spending by a manager .
The focus of managerial economics
The focus of managerial economics is on how the firm
reacts to
changes in the economic environment in which it
operates and how it predicts these
changes and devises the best possible strategies to
achieve the objectives that underlie its existence
India at a glance:
The Indian economy is the fourth
largest economy of the world on
the basis of Purchasing
Power Parity (PPP)
Indian economy to grow 8.1 per cent
in 2011: UNCTAD (united nations
conference and
development).THE ECONOMIC
TIMES.
India has been ranked at the second
place in global foreign direct
investments (FDI) in 2010 and is
expected to remain among the
top five attractive destinations
for international investors
during 2010-12,


India at a glance:
India's FDI gathered momentum with the inflows
growing by 310 per cent in June 2011 to touch US$ 5.65
billion. It is the highest monthly inflow during the last 11
years. The total FDI stood at US$ 16.83 billion during
January-June 2011, nearly 57 per cent higher than the US$
10.74 billion received during the same period last year.
India's merchandise exports have registered an
increase of nearly 82 per cent during July 2011 from a
year ago to touch US$ 29.3 billion, according to a release
by the Ministry of Commerce and Industry
India's foreign exchange (Forex) reserves have
increased by US$ 1.6 billion to register US$ 318 billion
during the week ended August 19, 2011, according to
data released by the Reserve Bank of India (RBI



Fall of capitalism and strength of
indian economy
Fall of capitalist economies due to too much of
stimulus packages given in these economies.
India is fortunate in the sense that both the public and
private sectors are active, and both are equally aware of
the crisis. They are, in fact, going hand in hand to get
the country out of this crisis.

Fiscal policy
Fiscal policy is used by
the government to
influence the level of
aggregate demand,to
achieve economic
objectives of
pricestabilitiy,full
employment and
economic growth.

Monetary policy
Regulatory policy to
control money supply
Level and structure of
interest rates.
Central bank signals the
market .

Tools of fiscal policy


Public expenditure.
Public revenue
Public expenditure
Motivating force for raising
public revenue and aims at
enhancing the quality of
life.
public enterprises,e
economic infrastructure
and even social overheads
like health,education
thereby increasing the
productive capacity of the
nation.
Public expenditure
Public revenue
Raised by taxes,both direct and indirect,profit from
various financial institutions,interest from loans given
to other gvernments,local bodies and other
institutons.
Also loans from central banks on issue of long term
bonds.
Objectives of fiscal policy in india
rapid economic growth.
Expansion of employment.
Reduction in income and wealth.
Price stability.
Impact of fiscal policy
Increased public expenditure enhances the productive
capacity of the economy and the business,thereby
increasing the growth rate.
Taxes are used to finance the public expenditure and
also to absorb excessive purchasing power in the hands
of the public.
Directs the money supply into productive channels.
Monetary policy
Policy employed by the
state through its central
bank to control the
supply of money as an
instrument of achieving
the objectives of general
economic policy.
Objectives of suitable monetary
policy
stable prices.
maintain a fair degree of exchange
stablity:through expand exports,discourage outward
capital movements.
encourage rapid economic growth: ensuring
adequate flow of money into channels of disirable
long-term investments in infrastructure building and
in basic and key industries through variable interest
rates and selective credit control measures.
Tools of monetary policy for
achieving economic objectives
open market operations:
Direct and deliberate buying and selling of securities and
bills by the central bank with the objective of expansion
and expansion of credit.
During inflation :to absorb excessive purchasing
power central bank sells treasury bills and securities which
transfers the cash from public to the banks.
Commercial banks also reduce loans and advances to
public,thus reducing the excessive purchasing power.
During Depression:
When the central bank buys bills and securities .this will
increase the cash reserves with the commercial banks and
thus would extend credit in the market.
Variation in reserve requirements :
CRR and SLR
CRR is the portion of total deposit of the commercial
banks which they have to keep with the central bank.
Inflationary periods:CRR is increased time to time.
SLR:statutory liquidity ratio is the portion of total
deposits of commercial banks which it has to keep
with itself in the form of liqid assets.
Conclusion:
Complete understanding the fiscal and monetary
policies of the government helps the business
managers to contribute to the profitable growth of
business
Provide effective solutions of the business
problems by changing the economic scenario in to
the feasible business opportunities for business
organizations
enable managers to optimize business decisions as
well as involving them in the activity of forward
planning efficiently