| Monetary and fiscal policies have impact on the | | | | If govt. want to privatize and encourage private |
| total economy. Those macroeconomic policies | | | | sector to grow, Govt. will take privatization policy. |
| shape, and guide and control the behavior of the | | | | In this case govt. will give facilities to the private |
| economy. The following factor needs to be | | | | sector by lowering taxes and decreasing interest |
| considered in making monetary and fiscal policy: | | | | rate through monetary and fiscal policy and vice |
| 1. Inflationary state of the economy: | | | | versa. So govt. perspective on privatization is |
| If the economy suffers higher inflation then | | | | another important considerable factor. |
| increasing money supply through monetary policy | | | | 10. Balance of payment: |
| can be ineffective. So in making monetary and | | | | Balance of payment is another important factor. |
| fiscal policy this factor should be considered | | | | If the govt. wants to decrease trade deficit |
| 2. Marginal propensity to consume: | | | | certainly it can encourage export and discourage |
| The willingness of people to consume is another | | | | imports. So, monetary policy will reflect the desire |
| factor in making those policies. Suppose if people's | | | | of Govt. |
| tendency is to consume whatever the interest | | | | 11. Influence of Donor institutions and countries |
| rate is then monetary and fiscal policy may be | | | | As a third world and developing country like |
| ineffective | | | | Bangladesh, where we are dependent on huge |
| 3. Govt.'s estimated GDP target: | | | | loan from the international organization. The |
| Every govt. has specific GDP target. Govt. makes | | | | influence of those organizations sometimes can be |
| policy to achieve the estimated GDP target. So | | | | a considerable factor in making monetary and |
| this should be taken into consideration in making | | | | fiscal policy. In our country IMF and EU always |
| monetary and fiscal policy. | | | | pressures govt. to increase the deposit rate. So in |
| 4. Economic condition of a country: | | | | policy making this is a considerable factor for the |
| When the economy is in a recession, monetary | | | | govt. |
| policy may be ineffective in increasing spending | | | | 12. Enforcement of the policy: |
| and income. In this case, fiscal policy might be | | | | In making the policies, it should be determined and |
| more effective in stimulating demand. | | | | ensured that the policy should be in effect. |
| 5. Present interest rate in the market: | | | | Enforcement and implication is very much |
| In setting the policies another considerable factor | | | | important here. |
| is the present interest rate. The present interest | | | | 13. Expectations of people regarding future: |
| rate determines whether expansionary or | | | | If people expect that the monetary policy and |
| contractionary monetary and fiscal policy should | | | | fiscal policy will create tax burden in future, then |
| be introduced. The success of the policy depends | | | | policy implication can be difficult. So it should be |
| on considering this factor. | | | | taken into consideration. |
| 6. Govt. revenue target: | | | | 14.Foreign Currency reserve: |
| In each and every year govt. sets specific | | | | Each and every year govt. especially central bank |
| revenue target. Through the budget govt. | | | | has some specific foreign currency reserve |
| specifies it. So in making fiscal policy it should be | | | | target. In order to increase the reserve, favorable |
| considered. Suppose, in contractionary policy tax is | | | | monetary policy should be introduced. So it is also |
| reduced. If this happens then the policy | | | | important factor in consideration. |
| contradicts with the aim to achieve revenue | | | | 15. Political stability: |
| target. | | | | A country's political situation is another |
| 7. Govt. policy toward import and export: | | | | consideration for making those policies. If there |
| Sometimes govt. wants to bar against import or | | | | exists stable political situation then any policy can |
| export, so in making fiscal policy and monetary | | | | be implemented easily. But in case of unstable |
| policy this should be taken into consideration. | | | | political situation it's difficult to implement those |
| Reducing export duty or imposing import duty to | | | | policies. |
| any industry can have an impact on govt. policy. | | | | 16.Govt. spending on structural buildup: |
| 8. If the economy is in booming situation and | | | | If govt. has a policy to build up infrastructure, |
| nation is experiencing industrialization, In that | | | | then govt. make fiscal policy in favor of govt. |
| situation if govt. want to reduce the pace of | | | | Spending. Here govt. spends much to develop the |
| industrial growth monetary and fiscal policy then | | | | structure in transportation or other areas |
| become a tool. So this factor can also be | | | | Those are some factors needed to be considered |
| considered in creating new policies. | | | | in making monetary and fiscal policy. |
| 9. Govt. policy on privatization: | | | | |