Nepalese economy has been bearing the problem of more or less double digit inflation since 2007. Other neighboring countries like India and China are enjoying double digit economic growth. However, Nepal is suffering from the problem of double digit inflation, which has made economy severe ill. This high growth of inflation has caused the economy adversely from different spheres.
Due to the higher inflation, there is rapid fall in value of Nepalese currency. Central bank of Nepal, Nepal Rastra Bank is compelled to pay very high price to gain foreign currency like US dollar, Euro dollar, Pound Sterling and other foreign currencies. Interests for foreign loans are increasing day by day. The per capita amount of loans for Nepalese people has
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Excess money supply, political instability, growing population, increasing remittance, shortage of commodities, lack of good governance, rise in oil price, lack of sufficient electricity, slow pace of industrialization, less investment and capital formation, unfavorable balance of payment situations, increasing expenditure in unproductive activities etc are the dominant factors causing inflationary pressure in Nepalese economy. Broadly speaking, Nepalese inflation is caused mainly by two factors: monetary factors and non-monetary/institutional factors. Over money supply along with the increasing remittance are monetary factors and other factors mentioned above are institutional …show more content…
The less priority to the concerned output generators relating to economic management have also increased the weaknesses and vulnerabilities in the economy. With unsatisfactory socio-economic development indicators, including very low level of per capita income and highly skewed distribution of income and access to opportunities have caused very slow economic development in Nepal.
Macroeconomic management in a situation of slower economic growth and higher inflation remains a challenging task. Raising the aggregate demand would be an important policy option to address the slow economic development. However, due to high inflation, any attempt at raising the output via increasing aggregate demand could put further pressure on prices.
Likewise, the monetary measures aimed at controlling the over money supply could reduce the inflation. So there is a need for improving monetary policy with the help of credit contraction, increasing reserve ratio of commercial banks, increasing bank rates, open market operation and other monetary
..., restrictive monetary policy is used to slow the GDP growth rate and reduce the inflation rate. All in all, both monetary policies are used and to alter inflation and GDP growth rate and then to support economic activity.
In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).
The term Monetary policy refers to the method through which a country’s monetary authority, such as the Federal Reserve or the Bank of England control money supply for the aim of promoting economic stability and growth and is primarily achieved by the targeting of various interest rates. Monetary policy may be either contractionary or expansionary whereby a contractionary policy reduces the money supply, reduces the rate at which money is supplied or sets about an increase in interest rates. Expansionary policies on the other hand increase the supply of money or lower the interest rates. Interest rates may also be referred to as tight if their aim is to reduce inflation; neutral, if their aim is neither inflation reduction nor growth stimulation; or, accommodative, if aimed at stimulating growth. Monetary policies have a great impact on the economic stability of a country and if not well formulated, may lead to economic calamities (Reinhart & Rogoff, 2013). The current monetary policy of the United States Federal Reserve while being accommodative and expansionary so as to stimulate growth after the 2008 recession, will lead to an economic pitfall if maintained in its current state. This paper will examine this current policy, its strengths and weaknesses as well as recommendations that will ensure economic stability.
Shrestha, Nanda R. Nepal and Bangladesh: a World studies Handbook. Santa Barbara, CA: ABC-CLIO, Inc, 2002
When an economy is in a recession the government has to act differently in order to increase demand and help businesses survive. The money supply method of the monetary policy is a good idea in theory but because of the current economic crisis, banks don’t feel secure enough to lend out there money as the return isn’t guaranteed.
Difficulties in Formulating Macroeconomic Policy Policy makers try to influence the behaviour of broad economic aggregates in order to improve the performance of the economy. The main macroeconomic objectives of policy are: a high and relatively stable level of employment; a stable general price level; a growing level of real income (economic growth); balance of payments equilibrium, and certain distributional aims. This essay will go through what these difficulties are and examine how these difficulties affect the policy maker when they attempt to formulate macroeconomic policy. It is difficult to provide a single decisive factor for policy evaluation as a change in political and/or economic circumstances may result in declared objectives being changed or reversed. Economists can give advice on the feasibility and desirability of policies designed to attain the ultimate targets, however, the ultimate responsibility lies with the policy maker.
As a result of this economic growth families will begin to feel more confident and will begin to spend more of their money instead of saving it because they believe that will receive a pay raise or will find a better job. (Amadeo, 2016) Borrowing also increases when economic activity is high people begin to borrow from banks and other places because they feel that the government has been doing a great job managing the economy. (Amadeo, 2016) As we have seen in 2008 people should never get to confident in the economy because our economic bubbles are used to crashing when they are doing very well and it’s never really the people’s fault it’s the governments. Although inflation begins to rise when the economy is doing great one of the things that is known to bring prices down is competition among businesses. Competition is great because one company will attempt to sell a product for a cheaper price than another company which results in lower prices the same as you see with cell phones and automobiles. Higher prices can also be caused by technological innovations when people are expecting a new product the producer can sell it for a higher price because they know that consumers will spend almost any amont of money to obtain that product. (Amadeo, 2016) Higher demand for new products will increase employment to meet those demands and inflation will rise which will benefit the economy tremendously. Whenever the price level increases, spending must also increase to be able to buy the same amount of goods and
Inflation; ‘a situation in which prices rise in order to keep up with increased production costs… result[ing] [in] the purchasing power of money fall[ing]’ (Collin:101) is quickly becoming a problem for the government of the United Kingdom in these post-recession years. The economic recovery, essential to the wellbeing of the British economy, may be in jeopardy as inflation continues to rise, reducing the purchasing power of the public. This, in turn, reduces demand for goods and services, and could potentially plummet the UK back into recession. This essay discusses the causes of inflation, policy options available to the UK government and the Bank of England (the central bank of the UK responsible for monetary policy), and the effects they may potentially have on the UK recovery.
...an overabundance of information all applicable to the topic. My feeling was that such an overwhelming load of facts and systems directed me away from the most important facts of the chapter. Its imperative that the student understands the small scale relationship to economic development. Therefore my attempt was to highlight the main topics of the chapter and relate them to the reader to provoke intrest and thought towards many of these important life changing situations that occur everyday. If one can see past all the theories primarily and see the cause and effects behind them, they’re appreciation for the ideas stated in the theories.
It is difficult for government to achieve all the macroeconomics objectives at the same time. Conflicts between macroeconomics objectives means a policy irritating aggregate demand may reduce unemployment in the short term but launch a period of higher inflation and exacerbate the current account of the balance of payments which can also dividend into main objectives and additional objectives (N. T. Macdonald,
Economic growth is the most effective instrument for reducing poverty and enhancing the quality of life in developing countries. The benefits brought about from economic growth is strong growth and business opportunities enhance incentives. This may lead to the rise of a strong and growing group of entrepreneurs, which should generate pressure for enhanced administration. Strong economic growth therefore advances human development, which in turn promotes economic growth. But, under different conditions, comparative rates of development can have altogether different consequences for neediness, the occupation prospects of poor people and more extensive pointers of human development. The extent to which growth decreases neediness depends on the extent to which the poor take an interest in the growth process and share in its returns (Riley, G.
Today, couple of monetary forms are completely upheld by gold or silver. Subsequent to most world monetary standards are fiat cash, the cash supply could increment quickly for political reasons, bringing about inflation. The
Inflation is one of the most important economic issues in the world. It can be defined as the price of goods and services rising over monthly or yearly. Inflation leads to a decline in the value of money, it means that we cannot buy something at a price that same as before. This situation will increase our cost of living.
Daily in the USA about 38 million banknotes of various face value for total amount about 541 million dollars are issued (Facts about USA money).Dollars involve deep consequences both for the USA, and for other countries. Increase of its course relatively reduces the volume of export revenue in dollars, quite often involves more considerable, than change of an exchange rate, falling of the world prices, especially on raw materials. On the contrary, decrease in a dollar rate serves as the powerful tool promoting growth of the American export and a pushing off of competitors of the USA in foreign markets. At the same time import to the USA owing to effect of a rise in prices restrains. Thus, for the USA changes in the exchange rate of dollar anyway bring benefits and advantages.Reduction of leading positions of the USA in world economy is assisted by the international role of dollar which remains the main reserve and settlement means in world monetary system. Foreign currency reserves of the central banks of other countries for 61% consist of dollars, nearly 2/3 calculations in world trade are carried out in dollars; the dollar serves as a measure of value of many important goods (for example: oil) in the world market; in dollars 3/4 international bank crediting is made (Aleksandr Popov). Changes in the exchange rate of dollar involve deep consequences both for the USA, and for other countries. Increase of its course relatively reduces the volume of export revenue in dollars, quite often involves more considerable, than change of an exchange rate, falling of the world prices, especially on raw materials. On the contrary, decrease in a dollar rate serves as the powerful tool promoting growth of the American export and a pushing off...