Monetary Tools Of The Bangko Sentral Ng Pilipinas 294z47

MONETARY TOOLS OF THE BANGKO SENTRAL NG PILIPINAS

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Open Market Operations.

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These consist of buying and selling of government bonds.These activities are undertaken to accomplish the objectives of the national monetary policy

.RESERVE REQUIREMENTS. THE IMPOSITIONS OF RESERVE REQUIREMENTS ARE MAINLY FOR THE PROTECTION OF THE DEPOSITORS,THAT IS, TO ASSURE THE INDIVIDUAL BANKS WILL NOT ATTEMPT TO EXTEND CREDIT BEYOND THEIR CAPACITY IF THERE IS AN EXCESSIVE WITHDRAWAL.

 THE DISCOUNT RATE . ONE OF THE FUNCTIONS OF THE BSP IS TO ACT AS THE LENDER OF LAST RESORT .BANKS NEEDING RESERVES CAN BORROW FROM THE BSP.THE INTEREST RATE THAT THE BSP CHARGES ON THESE LOANS IS CALLED THE DISCOUNT RATE.

 .MORAL SUASION . IT REFERS TO THE ABILITY OF THE BSP TO PERSUADE BANKS TO PURSUE CERTAIN ACTIONS WITHOUT COERCION.

 .BUYING AND SELLING OF FOREIGN

EXCHANGE. THE BSP MAY BUY AND SELL FOREIGN EXCHANGE AT ALL TIMES TO MAINTAIN THE INTERNATIONAL STABILITY AND CONVERTIBILITY OF THE PHILIPPINE PESO TO PROMOTE THE DOMESTIC INVESTMENT OF BANK RESOURCES.

.SELECTIVE CREDIT .THE BSP WILL ENSURE THAT THE SUPPLY AVAILABILITY AND COST OF MONEY SHALL ACCORD THE NEEDS OF THE PHILIPPINE ECONOMY AND THAT CREDIT WILL NOT BE GRANTED FOR SPECULATIVE PURPOSES THAT DO NIT CONFORM TO THE NATIONAL INTEREST.

FISCAL POLICY 

Refers to the government actions that affect total government spending activities,tax rates or tax revenues, or the government budget deficit. It is an instrument which can push the economy towards equilibrium,when there are the destblizing elements operating in the economy.

TWO TYPES OF FISCAL POLICY

 Automatic

Stabilizers-



are government spending or taxation actions that take place without any deliberate government control and that tend automatically dampen the business cycle.

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Examples :Personal income tax collections fall during recessions as wages drop and people lose their jobs .Thus, during recessions ,government spending automatically rises and tax collections fall. While if the economy is in full or near full employment ,government spending falls and tax collections rise to avoid inflation.

 Discretionary

fiscal policies



-are government spending and taxation actions that have been deliberately taken to achieve specified macroeconomics goals.

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Example : If the economy is headed to a recession,the government can make a desicin to cut taxes to maintain purchasing power

THREE COMPONENTS OF FISCAL POLICY

.Taxation .Government

Borrowing . .Government Spending

THREE MAJOR FUNCTIONS OF FISCAL POLICY  

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.Allocation Function. -It is the process by which total resources are divided between private and social goods and by which the mix of social good is chosen. .Distribution Function. -Adjustment of income and wealth to assure cnformance with what society considers as ‘’fair or just’’distribution .Stabilization Function . -The use of budget policy to maintain high employment ,price level stability ,and economic growth.

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