Role of Human Resource in Economic Development of Country - Economics Notes Grade XI Management. On the one hand, an increase in government spending will stimulate aggregate demand and increase the national income. The commercial banks, mainly provide short-term credit requirements of businessmen and traders and are reluctant to provide medium and long-term credit to meet the financial requirements of industry and for manufacturing in general. Privacy Policy 8. TOS 7. The latter refers to a situation in which more than the required number of people are employed in a job. From the above discussion, it is clear that a wise monetary policy can go an long way in stimulating economic development. In fact, the development and implementation of fiscal policy must be cooperated with the financial policy, industrial policy and income distribution policy and other economic policy. A falling price level adversely affects the pace of economic growth by initiating a vicious downward spiral of prices and output. Role of monetary policy in the economic development of a country are as follows: 1. 1. As well as, guiding the overall pace of economic activity, attempting to maintain steady growth, high levels of employment, and price stability. Fiscal policy deals with macroeconomic levers of power. The government may start borrowing from the people in large scale so that the disposable income with the people will be reduced bringing down the demand and prices. And they will be increased due to reducing in government revenue as well. But this is very difficult in practice as in a developing country the government cannot have budgetary surplus. Besides, the rise in per capita income and increase in population during the development process also increases the demand for money to carry out day-to-day transactions. High inflation can lead to devaluation of the currency and discourage foreign investment. Through its debt management policy also the fiscal authorities can control inflation. Your email address will not be published. An empirical investigation of 56 developing countries is used to assess this role of the government and to evaluate whether it is facilitating or hindering the process of economic development. Following on from this recent debate, ODI invited them both to further the discussion on what role industrial policy can play in promoting development. This will quicken the pace of development. This site uses Akismet to reduce spam. Role of Monetary Policy in Economic Development of Pakistan. Similarly the Central Bank and financial corporations to provide finance to business and industry. In under-developed countries there is death of financial institutions and banking facilities are available only to a limited extent. However, there are economists who suggest a policy of high interest rates on the following considerations: (a) It will serve as an anti-inflationary measure by restricting borrowing from the banks for speculative purposes and undesirable investments; (b) It will stimulate savings and thus increase the supply of investible sources. A network of cooperative credit societies with apex banks finances by the Central Bank can go a long way in providing the credit needs of the ruralites. The role of the entrepreneur may be viewed as the leader of the whole … over the stability of the economic development. This paper reviews the many areas in which economists play an important role in policy-making, including the quantification of objectives set by political processes, formulation of macroeconomic policy where economists have a dominating role, and also the formulation of sectoral policy where they work in combination with sector experts. 2. The primary object of debt management “is to create conditions in which public borrowing can increase from year to year and on a big scale without giving any jolt to the system. 15th August 2008 By: Kenneth Creamer. With a view to secure an accelerated rate of economic growth, the monetary authority should press into service its techniques of credit control to influence and shape the character and pattern of investment and production. The government should devise its public expenditure scheme by focusing on the poor and down-trodden people in the society. How have economic historians understood the role of politics in shaping country differences in economic development? (1984). Public expenditure during this period must be increased. The monetary authority can help in the expansion of financial institutions by granting subsidies and special concessions in the form of free remittance and rediscounting facilities to new institutions and by providing training facilities for their staff. The field of development economics is concerned with the causes of underdevelopment and with policies that may accelerate the rate of growth of per capita income. The developing countries, therefore, should be more pragmatic in their approach and must evolve such a differentiated interest rate policy which should restrain the superfluous spending, contain the inflationary pressures, promote capital formation and sustain the investment activity at a level such that the pace of growth is not slowed down. 5. In this process now-a-days the governments also resort to deficit financing. Fiscal policy refers to the guiding principles of the financial work which are constituted by the state based on political, economic and social development tasks under a certain period. Secondly, the government must encourage consumption and investment and for this purpose the taxation should be brought down. Alternatively, the government can increase the existing tax rates or impose new taxes. The term has been used frequently in the 20th and 21st centuries, but the concept has existed in the West for far longer. Appropriate Adjustment between Demand for and Supply of Money, 2. Hence, there will be effective control of money supply in the economy. Besides joint loans by commercial banks and state owned financial institutions can greatly help in this direction. Economic growth calls for the application of all the tools of fiscal policy. The government can achieve this either through pump priming or compensatory spending. Plagiarism Prevention 4. Instead, monetary policy—controlling the nation's money supply through such devices as interest rates—assumed a … The role of monetary policy in economic development. In such a situation, the monetary policy should be directed to improving the foreign exchange position. But the rate of saving being low, the government has to resort to large scale borrowing and deficit financing to cope with the rising investment. SAVE THIS ARTICLE EMAIL THIS ARTICLE. Economic Growth . Price Stability, 3. Credit Control, 4. The Role of an Economic Development Director ... Economic development policies are ultimately approved by the city council. This implies the adopting of such monetary policies that will check inflation and frequent development of the currency. Governments should target their resources toward gaps in support that businesses cannot fill through the private marketplace. The effects of various kinds of public spending and revenue (mainly taxes) are examined. In fact, it is due to market imperfection that need of regulation in production and marketing activities was felt. Fiscal policy should change this situation. Thus the tax policy may be used to strengthen incentives to savings and investment. Besides, a low structure of interest rates minimizes the burden of public debt. It has to be coupled with monetary policy. The important role played by the fiscal policy in a developing economy can be explained through : Inflation is a period in which the purchasing power with, the people in the economy is high. The government can resort to both the direct as well as indirect taxes so as to generate as much funds as possible from all those who have the ability to pay. The monetary authority, therefore, should keep a constant vigil on the movement of prices and so regulate the supply and direction of money and credit that it puts a check on rising prices. given a Central Bank independence to control inflation thr… 1, pp. It is considered as a means of financing economic development. 5, No. This concludes budgets, debts, deficits and state spending. Since there is dearth of complementary resources in such economies and the supply curve of goods is generally inelastic, the abnormal increasing effective demand generated by huge government expenditure paves the way for inflation. There are numerous forces that function together to enhance economic growth and development. Image Guidelines 5. Role of Fiscal Policy in Economic Development, Keynesian Theory and Underdeveloped Countries, Importance of Capital Controls in Economic Policy, Correction of Balance of Payments (BoP) Deficit, Deflation - Meaning, Effects and Modes of Control, The macroeconomic environment in marketing, Implementation of New Economic Policy to Indian economy in 1991, Keynesian and Classical Economists Views about Disequilibrium. As against this it is pointed out that cheap money policy may induce the traders and speculators to borrow more from the banks and utilise these funds for hoarding and stockpiling and for other speculative purposes. For the attainment of the objective of growth with stability, the monetary authority of developing economies, therefore, has to play a positive role in creation, working and expansion of banking and other financial institutions and extend credit facilities where needed. Prohibited Content 3. Low inflation creates a climate where foreign investors have more confidence to invest in that country. Another way in which the fiscal authorities can function is to  indulge in public borrowing. The Role Of Government In Economic Development 2. 6) To known the obstacles facing community development in independence layout. The inflationary increase in prices adversely affects the propensity to save and diverts invertible resources into speculative and unproductive investments such as real estate, jewellery, gold, stock-piling of goods etc. On the other hand, a tax is a kind of contraction strength to national income. And this must be on cheap rates to keep the burden of the debt low.”. 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