Question

Briefly describe and state the objectives of monetary and fiscal policies. Compare and contrast the monetary policy objectives and instruments used in selected Caribbean countries (B’dos, Jam, TT, OECS). For a country of your choice, identify some of the fiscal policies that have been used in the past.

Answer 1

Ans. Central banks take on multiple roles in modern economies. They are usually the monopoly supplier of their currency, the lender of last resort to the banking sector, the government's bank and bank of the banks, and they often supervise banks. Although they may express their objectives in different ways, the overarching objective of most central banks is price stability.Central banks achieve that objective of price stability through monetary policy. Fiscal policy involves the use of government spending and revenue raising taxation, to impact a number of aspects of the economy: the overall level of aggregate demand in an economy and hence the level of economic activity; the distribution of income and wealth among different segments of the population; and hence ultimately the allocation of resources between different sectors and economic agents. The tools that governments use in implementing fiscal policy are related to the way in which they raise revenue and the different forms of expenditure. In most of the Caribbean countries the Inflation targeting is the most common monetary policy, although exchange rate targeting and building foreign reserve is also used as key objective. For e.g. the eastern carabbiean central bank also highlights price stability as the key objective for them. Many Caribbean countries such as Jamaica , have focused on higher fiscal expenditure and tax cuts as the key fiscal policy measures.