A higher rate of interest may, however, be used as a shock tactic to curb speculation in goods and securities when it gets beyond control and other methods have failed to control it. Thus the tax policy may be used to strengthen incentives to savings and investment. 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. Similarly, if the supply of money is more than needed by the requirements of trade and industry, it may be used for speculative purposes, thereby inhibiting growth and causing inflation. Thus in an underdeveloped economy, the monetary authority should control the uses of money and credit by an appropriate monetary policy so that investible resources flow into desirable channels without adversely affecting investment and production. This will, of course, depend on the range of credit institutions that exist in the economy and also on the forms of credit controls that are employed by the Central Bank. Role of monetary policy in the economic development of a country are as follows: 1. (1984). For this, the Central Bank may raise the bank rate which would reduce the pressure of demand for bank credit by making borrowing costlier than before and this will discourage borrowing for hoarding and speculative purposes. Report a Violation, The Major Role of Monetary Policy in a Development Economy | Economics, Role of Monetary Policy in the Economic Growth of a Country, Monetary Policy in Under-Developed Countries. Abstract This paper focuses on the role of government finance in economic development. With public expenditure and taxation, the government can very easily achieve income equality. given a Central Bank independence to control inflation thr… Your email address will not be published. The Role of an Economic Development Director ... Economic development policies are ultimately approved by the city council. 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. Leader of the Whole Industry. The Role Of Government In Economic Development 2. In depression, tax is set to increase the consumption and reduce the savings to increase the aggregate demand and vice verse. Government must use its planning machinery to identify the right priorities so that the hard mobilized funds are utilized in the best way possible. Thus for speeding up the process of economic development, the monetary policy should aim at the efficient management of public debt which implies proper timing of the issuing of government bonds, stabilising their prices and minimising the burden of debt. Local economic governance is about strengthening the governance capacity of local institutions to manage economic growth and other development challenges at the local level taking advantage of the opportunities of economic liberalism ushered in by the globalisation dispensation (Tolentino 2011). 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. The role of fiscal policy The role of fiscal policy—the national government’s planned, discretionary balance between its outlays and recurrent revenues (broadly, spending and taxes)—has long been a subject of debate and controversy in modern times. Disclaimer 9. To create a low inflationary framework, it requires: 1. In the economic study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and objectives.. Instead, monetary policy—controlling the nation's money supply through such devices as interest rates—assumed a … In fact, it is due to market imperfection that need of regulation in production and marketing activities was felt. 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. The productive and efficient use of investible resources can be better secured by direct controls and control over capital issues. Besides joint loans by commercial banks and state owned financial institutions can greatly help in this direction. Role of Fiscal Policy in Economic Development of Under Developed Countries! A falling price level adversely affects the pace of economic growth by initiating a vicious downward spiral of prices and output. Therefore, the aggregate demand and the national income will be restrained though increasing government revenue. A developing country generally suffers from balance of payments difficulties because of the high propensity to import and limited capacity to export. Hence, there will be effective control of money supply in the economy. From the above discussion, it is clear that a wise monetary policy can go an long way in stimulating economic development. 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. 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