Characteristics of fiscal policy and monetary policy

Fiscal policy and monetary policy combination of flexible and diverse ways, its also have their own characteristics. The following is my carefully organized article about the characteristics of fiscal policy and monetary policy, I hope it will help you!!!!

Characteristics of fiscal and monetary policy

Characteristics of fiscal policy

In the Keynesian economic thought under the main influence of the establishment of modern economic theory generally believes that: for any economy and society, to maintain full employment state of macroeconomic stability is the overriding thing, the government has an inescapable responsibility for this. It is precisely because of the political influence of this economic theory that most Governments are in fact pursuing prudent fiscal policies in various forms, complemented by other economic policies. Therefore, in the process of financial activities of governments can be found in many **** the same place, is regarded as the general characteristics of modern government fiscal policy:

A stabilization of the economy as the basic goal of fiscal policy

Modern economic life, although the government's financial activities to help achieve a variety of goals, but the government's ability, financial resources are, after all, is limited, and extensive intervention in economic life is to pay an increasing cost of the economy, but also to pay a lot of money to the government. life is to pay an increasing economic cost. Therefore, the multi-objective fiscal policy in a specific period of time in fact can only be to realize the limited important goals. On the post-war financial activities of most national governments in practice, modern fiscal policy to stabilize the macro-economic as the basic goal - often to maintain the national economy at a low and stable price level and full employment (full employment) state. Full employment refers to an economic state in which everyone willing to work can find a job at the wage level set by the prevailing labor market. In practice, however, full employment as a governmental economic goal refers to maintaining an economic and social unemployment rate that does not exceed a socially acceptable level. For example, in the 1960s, the U.S. government viewed a domestic employment situation with no more than 4% unemployment as meeting the goal of full employment, and later this target was increased, rising to 5.5% in the 1980s.

In general, macroeconomic fluctuations are the norm in a market economy, and recessions and booms will always alternate, causing serious economic problems such as underemployment, inflation, investment volatility, and foreign trade imbalances. One of the possible solutions to the problem, then, is to ask the government to prudently alternate between expansionary and austerity fiscal policies to artificially compensate for the business cycle. Its feasibility has already been proved theoretically. The alternating use of expansionary and austerity fiscal policies to maintain macroeconomic stability has become the ****same feature of the fiscal policies of most post-war governments, consistent with the objective fact that a highly developed market economy cannot be separated from effective government intervention. Although there are some countries, especially developing countries in the early stages of economic development, fiscal policymaking tends to purely stimulate economic growth as the goal, however, with the deepening of the role of the market economy mechanism, as well as the market economy under the conditions of the national economy's growth, growth, and stabilization of the macro-economy will naturally become the main goal of the government's fiscal policy. Governments are pursuing ? Stabilization policy? The specific measures used, the focus of intervention, intervention time may be different, but the role of the mechanism of this policy is largely the same.

Fiscal policy based on expenditure adjustment

The implementation of stabilization policy requires the government to adjust tax revenues or fiscal expenditures accordingly to influence the total economic and social demand based on its judgment of the changing national economic situation. However, in order to achieve the goal of macroeconomic stabilization, whether the government should change tax revenue, or change expenditure, or change tax revenue and expenditure at the same time, this often becomes a problem that must be carefully studied in the process of policy making. The analysis of relevant theories suggests that the implementation of a stabilization policy that focuses on expenditure regulation has relatively better policy effects.

Theoretical analysis further found that, compared with changes in government spending, (in addition to the one-time lump-sum tax) tax changes on the economic behavior of economic activity subjects generally have two types of economic impact, namely, the income effect (income effect), substitution effect (substitution effect). Income effect refers to the tax caused by the actual reduction of people's disposable income, under other unchanged conditions, resulting in a corresponding reduction in the purchasing power of the economy and society; Substitution effect refers to the tax caused by the change in people's economic behavior, that is, in order to reduce the tax burden of people to change in the economic behavior of the choice between the available alternatives. The substitution effect usually changes the original relative price system of the economy and society, resulting in people in order to reduce the tax burden and adjust their economic decisions accordingly. This adjustment of economic behavior is generally associated with varying degrees of blindness, and in most cases results in a decline in socio-economic welfare.

Based on the above understanding, in the implementation of stabilization policy, governments usually try to keep the tax policy relatively unchanged in order to reduce the negative impact of stabilization policy itself on the macroeconomic process. But the practice of certain countries has also shown that: while expenditure adjustments are being made, appropriate tax rates are being? fine-tuning? can reduce the pressure on government fiscal activity caused by budget surpluses (budget deficits). In general, people can from the change in the total amount of government fiscal spending, changes in the structure of spending roughly infer the main impact of the current fiscal policy on the macroeconomy, including the impact on the direction of change in national income, the impact of the scale of change in national income, the impact of changes in the structure of the national economy, as well as the promotion of long-term economic growth factors of the specific impact and so on.

10 characteristics of China's monetary policy

First, in general, China's economy in the process of transition is still widespread? Overheating impulse? and the need to always emphasize inflation prevention.

Second, China's monetary policy has adopted a multi-targeting system. We say that China's monetary policy has adopted the first to keep inflation low, the second is to promote reasonable economic growth, the third is to maintain a fuller employment, the fourth to maintain the balance of payments balance of the four objectives approach. The more popular policy approach globally before the current financial crisis was a single-target approach, which was just low inflation. In addition, to a certain extent, it is a single target and a single tool, and the tool refers to the short-term use of policy interest rates. Perhaps some people argue that multi-targeting is not easy to grasp, multi-targeting has something to do with the tradition of planned economy in the past.

Third, attach great importance to the health of financial institutions, emphasizing online recovery and emergency relief.

Fourth, the means of monetary policy, from the means of a planned economy gradually shifted to more market-oriented means.

V. Adapt to the changes after the Asian financial crisis and accurately grasp the exchange rate reform process.

Six, that is, compared with the exchange rate just now, the stage of the balance of payments double surplus, the two surpluses in parallel for a longer period of time, will make the money supply increased significantly, the market liquidity is obviously excessive, while bringing the pressure of inflation, we may be at that stage have experienced.

VII. Taking the lead in launching the macro-prudential policy framework has enriched the toolbox of monetary policy.

VIII. Cooperate with the financial reform process to grasp the interest rate marketization and spread formation.

ix. In response to the current round of international financial crisis, monetary policy has responded quickly, with sufficient strength and timely exit.