FISCAL POLICY - Is the use of government spending and taxes to

influence the nations spending, employment, and price level. It is also

manipulation of the national government budget to attain price stability,
relatively full employment, and a satisfactory rate of economic growth.

EXPANSIONARY FISCAL POLICY - A macroeconomics concept that

focuses on expanding the economy to counteract cyclical downtowns

CONTRACTIONARY FISCAL POLICY - is when the government either

cuts spending or raises taxes. Its purpose is to slow growth to
a healthy economic level.

MONETARY POLICY - Is generally the process by which the central

bank( in the case of the Philippines this refers to the Bangko Sentral ng
PIlipinas or BSP) controls the supply and availability of money, the cost of
money, and the rate of interest. The main objective is stabilizing the price
level.

EXPANSIONARY MONETARY POLICY

A policy by monetary authorities to expand money supply and boost
economic activity, mainly by keeping interest rates low to encourage
borrowing by companies, individuals and banks.

CONTRACTIONARY MONETARY POLICY is a monetary policy

setting that intends to decrease the level of liquidity / money supply in
the economy and which could also result in a relatively lower inflation
path for economy.

MONETARY POLICY INSTRUMENT

RESERVE REQUIREMENT- refers to the proportion of banks

deposits and deposit substitute liabilities that banks are required to
hold as reserves.

OPEN MARKET OPERATIONS -the sale or purchase of government

securities by the BSP to withdraw liquidity from or inject liquidity into
the system.
-REPO AND REVERSE REPO AGREEMENT - The agreement to
sell them at a higher price at a specific future date.
 -OUTRIGHT PURCHASES AND SALES OF SECURITIES - An
outright contract involves direct purchase/sale of government
securities by the BSP from/to the market for the purpose of
increasing/decreasing money supply on a more permanent basis.

MONEY SUPPLY refers to the amount of money in circulation in the

economy.
M1 consists of currency in circulation and peso demand deposits
M2 or Broad Money consists of M1 plus peso savings and time
deposits
M3 or Broad Money Liabilities consists of M2 plus peso deposit
substitutes, such as promissory notes and commercial papers.
M4 consists of M3 plus transferable and other deposits in foreign
currency.

FUNCTIONS OF MONEY
Medium of exchange
Unit of discount
Store of value
Standard of deferred payment

DEMAND FOR MONEY

-is the amount of money, people desire to hold.

Interest rate = Opportunity cost of holding money.

3 Primitive Motives for Holding money:

1.) Transactions Motive

-To settle transactions.
2.) Precautionary Motive
-It is a method of storing purchasing power for future use.
Example:
Unexpected repair bill
Accident
Medical Emergency
3.) Portfolio Motive
-To reduce the riskiness of a portfolio of assets by including some
money in the portfolio.
Why Business demand money?
Meet weekly payroll
Pay utility bills
Purchase supplies
Conduct other transactions

Factors which increase the Demand for Money

1. A reduction in the interest rate.
2. A rise in the demand for consumer spending.
3. A rise in uncertainty about the future and future opportunities.
4. Inflation
5. A rise in the belief of the future value of the currency.

MONEY MARKET EQUILIBRIUM

The equilibrium level in the market occurs when money supplies (Ms)
equals money demand