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 isthe study of the overall economy and its aggregates such as

Gross NationalProduct, Inflation, Unemployment, Exports, Imports, Taxation

Policy etc.Macroeconomics addresses questions about changes in

investment, governmentspending, employment, prices, exchange rate of the rupee

and so on.

Business manager and economic termsGDP 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 economicsThe focus of managerial economics is on how

the firm reacts tochanges in the economic environment in

which it operates and how it predicts thesechanges 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 economyFall 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 policyFiscal 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 policyRegulatory 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 expenditureMotivating force for

raising public revenue and aims at enhancing the quality of life.

public enterprises,eeconomic infrastructure

and even social overheads like health,education thereby increasing the productive capacity of the nation.

Public expenditure

Public revenueRaised 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 policyIncreased 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 policyPolicy 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 SLRCRR 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