Analysis Of Different Types Of Policy Economics Essay

Introduction

Because of wars, natural catastrophes and many other grounds that happened in past. states like Japan, USA, UK and many more states in the universe now confronting poorness.

But Sri Lanka in the boundary line of poorness.The papers show all the statistic of 2006 to 2009 macro elements and societal indexs.Poverty can be cause by some factors theses are reference below.

FISCAL Policy: Harmonizing to Beardshow, Brewster, Cormack and Ross ( 2001 ) , Fiscal policy is the ordinance of the economic system through authorities disbursement and revenue enhancements.

Monetary Policy: Harmonizing to Fernando ( 2008 ) , pecuniary policy refers to policy adopted by the pecuniary authorization, with regard to the supply of money.

SUPPLY -SIDE Policy: Harmonizing to Nellis, Parker ( 2002 ) , it refers to those authorities policies that are directed at undertaking jobs affecting the aggregative supply of goods and services in the economic system.

Exchange Rate POLICY: It refers to authorities intercession on the foreign exchange markets to act upon the degree and way of the external value of a state ‘s currency.

Beginning: Nellis, Parker ( 2002 )

INTERNATONAL Trade Policy: Harmonizing to Nellis, Parker ( 2002 ) , Trade policy involves steps taken by authorities, in add-on to interchange rate policy, to act upon the magnitude and way of foreign trade.

ECONOMIC REASONING AND ARGUMENTS

Harmonizing to Anderton ( 2006 ) , Macroeconomic is concerned with the survey of the economic system as whole. For case, macroeconomics considers the entire measure produced of goods and services in an economic system.

There are macro economic sciences ends that are unemployment, rising prices, and economic growing, balance of payment.

2.1How macroeconomic end consequence poorness of a state

Business or trade rhythm

ECONOMIC

Growth

Boom

GDP

Inflation

Depression

Time RECOVERY

1. Economic growing: Harmonizing to Anderton ( 2006 ) , Growth in the productive potency of the economic system. In this phase high GDP, low rising prices, low unemployment, BOP ( favorable ) .

When GDP increases production additions so people are more employed by houses so people have money so poorness is reduced.

2. Boom: high GDP, Low rising prices, low unemployment, and BOP ( favorable ) .In this phase full employment is available.

When more people are employed people have money so poorness is reduced.

3. Inflation: it defined as a sustained general rise in monetary value. The rising prices rate can be change in mean monetary values in an economic system over a given period of clip.

Beginning: Anderton ( 2006 )

In here GDP is falling, monetary values are increasing, unemployment are increasing

Unemployment: it is figure of people out of work. Is measured as a point in clip.long term unemployment is by and large considered to be a great societal immorality.

Beginning: Anderton ( 2006 )

When more people are unemployed people do n’t hold money so there will be more poorness. When monetary values are high buying power is less that cause rising prices.

4. Depression: It is long term recession, rising prices falling ; GDP is falling, BOP ( unfavorable ) , unemployment rises.

When unemployment rise people do n’t hold money so poorness is created

5. Recovery: GDP is increasing, unemployment is falling, BOP ( favorable ) , rising prices rises.

6. Balance of payment: is record of all fiscal traffics over a period of clip between economic agents of one state and all other states.

BOP can divide into two constituents

Current history: where payments for the purchase and sale of goods and services are recorded.

Capital and Fiscal histories: where flows of money associated with economy, investing, guess and currency stabilization are recorded.

Beginning: Anderton ( 2006 )

If there is excess AD rises so this causes rising prices. Due to rising prices monetary values are high so so cost production besides high for houses. Firms will restrict their employees so unemployment degree will increase.

2.1 Macroeconomic policies

Fiscal policy

It concerned with the composing of and alterations in the degrees of public outgo and revenue enhancement.

Beginning: Nellis, Parker ( 2002 )

Expansionary financial policy is use when the economic system has a deflationary spread.for illustration Ad is deficient to make the full employment degree of end product.

Deflationary policy which is required when economic system has an inflationary spread.

Beginning: Sloman ( 2006 )

Fiscal policy and rising prices: When authorities outgo and a autumn in revenue enhancements will direct to higher budget shortage.so rising prices will be occur.

Fiscal policy and rising prices

When an expansionary financial policy imposed revenue enhancements will cut down hence people have more money to pass this will increase the AD. In the short tally the impact in this state of affairs is less as shown below.

Price degree

SRAS

P2

P1 AD1

Ad

Y Y1 Real end product

A state of affairs where there is full employment shown by a pecuniary LRAS curve.

P1/P2

Price Level

AD1

AD2

LRASIn the long “ AS ” curve

In long tally when “ AS ” curve moves from absolutely elastic to inelastic there will be larger consequence on rising prices after making full employment degree.

unemployment shown by a Keynesian LRAS curve

LRAS

AD1

Yttrium

0

P2

P1Fiscal policy and unemployment

Price LevelExpansionary financial policy will cut down the degree of underemployment. May cut down revenue enhancement load because of that end product and employment will increase. Harmonizing to monitories LRAS curve an addition in AD will increase rising prices but will non increase end product and employment.

AD2

Real end product

Keynesian LRAS curve

P1/P2

Price Level

AD1

AD2

LRAS

Real out put0

Q1 Q2 Y

When expansionary financial policy is imposed it will increase authorities outgo hence Ad curve will switch to compensate until full employment reached.

2.2Fiscal policy and economic growing

P1

P2

SRAS

AD2

AD1

Price degree

Real end product

0

Q1

Q2

When revenue enhancements are reduced and authorities outgo is high this causes higher production in the state hence AD shifted to the right.

LRAS

Real end product

Price degree

AD2

AD1

P2

P1

Y1

0

Yttrium

In the long tally at that place will be high economic growing bellow full employment degree as AD shifted to compensate.

Fiscal policy and balance of payment

The BOP will be favorable when utilizing deflationary financial policy.this is because when the authorities reduces it s outgo and increase revenue enhancements import will be more expensive so import will be more than exports so this will created excess in the current history.

Table 1- macroeconomic policy and financial policy

2.3 Monetary policy

Harmonizing toFernando ( 2008 ) Monetary policy refers to policy adopted by the pecuniary authorization, with regard to the supply of money.

Monetary policy and rising prices

When money supply increases general monetary values addition ( this is because P=MV/T.Therefore the AD shifted to compensate.

Monetary policy and unemployment

When money supply rises it will do rising prices or general monetary values rises.Therefore houses cost of production additions than they cut down on cost by cut downing figure of people employed. This will increase unemployment rate.

Monetary policy and balance of payment.

Higher money supply may do a falling demand for money.Therefore exchange rate depreciates. This will do the export of the state look more attractive.

When more exports are bought it may do excess in the current history of the balance of payment.

Monetary policy and economic growing

When the money supply increases the value for money falls therefore the buying power besides falls. Then people demand for less goods this will do a left ward displacement in AD conveying about a recession state of affairs.

Table 2- pecuniary policy

2.4Supply side policy

Supply side policy and lower Inflation

Supply side policy used to better the efficiency of factor markets, to hike productiveness and therefore the overall capacity of the economic system ( switching long run aggregate supply ( LRAS ) to the right and forcing out the PPF )

Beginning: Google ( 2011 )

Supply side policy will assist to cut down cost push rising prices by doing economic system more efficient. By switching AS to the right will do a lower monetary value degree.

Beginning: economicshelp ( 2011 )

Supply side policy and lower unemployment

This can assist to cut down structural, frictional and existent wade unemployment and therefore it assist to cut down the natural rate of unemployment.

Beginning: economicshelp ( 2011 )

Supply side policy and economic growing

By increasing the AS supply side policies will increase the sustainable rate of economic growing.

Beginning: economicshelp ( 2011 )

Supply side policy and balance of payment

When houses are mare productive and competitory they will be able to export more. This is of import in visible radiation of the addition competition from S.E. Asia.

Beginning: economicshelp ( 2011 )

Table 3 – supply side policy

2.5 What is poverty line

Harmonizing to Mankiw ( 2008 ) poorness line is an absolute degree of income set by the federal authorities for each household size below which household is deemed to be in poorness.

How to cipher poorness line

Poverty line or poorness stranded is the standards or measuring system used to measure whether or non an person, a household, or a part, is in poorness.

Beginning: Chen, Zhou ( 2005 )

During ground old ages, bookmans are disposed to utilize internationally united poorness line based on buying power para to compare poorness in different states.

Beginning: Chen, Zhou ( 2005 )

The poorness population and poorness rate in assorted states are estimated with the same poorness line and comparative poorness lines are different.

Beginning: Chen, Zhou ( 2005 )

Absolute poorness line is determined harmonizing to the minimal life disbursals that can keep the subsistence of laborers and their dependance ( Yu, Zh, 1997 ) .

Beginning: Chen, Zhou ( 2005 )

The usual methods to cipher absolute poorness line include: thermal disbursal method, basic demand method ( or fixed value and fixed measure method ) , Engel index method, excepting non necessities method, the ratio of gross disbursals and gross income, poverty index method, economic method, every bit good as income and nutrition consumption method ( Lin, M,1994 ) .

Beginning: Chen, Zhou ( 2005 )

Table 4 – what is poverty line?

Gini coefficient

This index can reflect the graduated table and extend of poorness, but can non sensitively reflect the distributing of hapless people.

The Gini coefficient of the hapless can reflect the distributing of hapless people ( Rislin, K 1994 ) .

Beginning: Chen, Zhou ( 2005 )

Index system of mensurating poorness

The poorness index system is composed of two factors

To comprehensively analyze poorness.

15 specific indexs

Beginning: Chen, Zhou ( 2005 )

Table 5 – Gini coeffecient and index of mensurating

Analysis AND Evaluation

Harmonizing to Business Times ( 2010 ) , ” Average income in nine territories in nine territories of six Sri Lankan states exceeded the national poorness line of Rs.3178 in October 2010 ”

District functionary poorness lines

( CCPI based twelvemonth 2002=100 )

( Minimal Outgo per individual per month to carry through the basic demands )

A

A

Base Year 2002A Rs.

1423

1537

1508

1523

1451

1395

1437

1466

1395

1338

1352

1423

1380

1366

1409

1366

1451

1437

Year 2008 Rs.

2845

3170

3014

3091

2915

2817

3048

2926

2788

2742

2778

2863

2697

2809

2911

2694

2838

2913

Year 2009 Rs.

2942

3278

3117

3197

3015

2913

A 3153

A 3026

A 2883

A 2836

A 2873

A 2961

A 2790

2905

3011

2786

2935

3013

Year 2010 Rs.

3117

3473

3303

3387

3194

3086

3340

3205

3055

3004

3044

3137

2955

3078

3190

2952

3110

3192

2010 June Rs.

3098

3451

3282

3366

3174

3067

3320

3186

3036

2986

3026

3118

2937

3059

3170

2934

3091

3172

2010 July Rs.

3097

3450

3281

3365

3173

3066

3318

3185

3035

2985

3025

3117

2936

3058

3169

2933

3090

3171

2010 August Rs.

3111

3466

3296

3380

3188

3080

3333

3199

3048

2998

3038

3131

2950

3072

3183

2946

3104

3185

2010 September Rs.

3141

3499

3328

3413

3218

3110

3366

3230

3078

3027

3068

3161

2978

3102

3214

2975

3133

3216

2010 October Rs.

3178

3540

3367

3453

3256

3146

3405

3268

3114

3063

3103

3198

3013

3138

3252

3009

3170

3254

2010 November Rs.

3213

3580

3404

3491

3292

3181

3443

3304

3148

3097

3138

3234

3046

3173

3288

3043

3205

3290

2010 December Rs.

3249

3620

3442

3530

3329

3217

3481

3341

3184

3131

3173

3270

3080

3208

3325

3077

3241

3327

2011 January Rs.

3290

3665

3486

3575

3371

3257

3525

3383

3224

3171

3213

3311

3119

3249

3367

3116

3282

3369

2011 February Rs.

3328

3708

3526

3616

3410

3295

3566

3422

3261

3208

3250

3350

3155

3286

3406

3152

3320

3408

Table 6 – poorness lines

Official Poverty line at national degree for FebruaryA 2011 is Rs.A 3328

Department of Census & A ; Statistics – Sri Lanka

Beginning: statistics ( 2011 )

Harmonizing to statistics ( 2011 ) , most of the territories have exceed the poverty line those are Colombo, Kalutara and Gampaha, territories in the western states and in Matale, Matara, Hambantota Kurunagala, Auradapura, Rathnapura and Monaragala have rank merely below the poorness line.

3.1 Poverty Alleviation plan

Figure 1- Poverty Alleviation plan

Beginning: CBSL ( 2011 )

The above statistics shows of poorness lift programme that aid from the authorities in order to assist the hapless people.

Harmonizing to chart above figure of samurdi beneficiary households are higher in 2005, 2006 and 2007.But the chart show the diminishing tendency in figure of sumurdhi beneficiary households in 2006 to 2009.

As figure of samurdhi beneficially households cut down in 2006 to 2009 households that enduring from poorness besides cut down because people have money so they do non necessitate samurdhi aid.

Figure 2- figure of beneficiary households

Beginning: Beginning: CBSL ( 2011 )

Harmonizing to the tabular array above as we can see in 2006 for income auxiliary programme figure of households 1,864,058.for dry ration programme 122,269 and for nutrition programme 186,211.In other than 2009 dry ration programme has increase the sum of households. But other old ages plans shows diing tendency in income auxiliary programme and nutrition programme.

This besides shows households that enduring from poorness besides cut down because people have money so they do non necessitate samurdhi aid.

3.2 Macro economic variables

Unemployment

Beginning: CBSL ( 2011 )

Figure 3 -trends in labour force

Harmonizing to the chart above we can see figure of labour force & A ; unemployment in 2006 to 2009.the unemployment rate is lower than labour force.

Harmonizing to the QLFS, the unemployment rate increased to 5.8 per cent in 2009 as compared to 5.8 per cent recorded in 2008.

The entire figure unemployed was estimated at 271,000 for 2009, which was higher than that of 434,000 in the old twelvemonth.

But with the domestic economic system, planned and ongoing development undertaking, Reconstruction, relocation and rehabilitation programmes in the northern and the eastern states, coupled with expected planetary recovery would bring forth a higher degree of unemployment chances in 2010.

Beginning: CBSL ( 2011 )

Harmonizing to the steps that taken by the authorities to increase the employment would be Sri Lanka Bureau of foreign employment ( SLBFE ) , Negenahira Navodaya Programme.

Beginning: CBSL ( 2011 )

Harmonizing to the recent economic development ( 2009 ) , in 2009 agribusiness sector increased to 31.9 per cent in the first half of 2009 from 29.9 per cent in the first half of 2008.

Inflation

Beginning: CBSL ( 2011 )

Figure 4 -movements in rising prices

Harmonizing to the chart above we can see motions in rising prices. Inflation rate has been decreased in 2008 to 2009.But harmonizing to Sunday observer ( 2011 ) in 2010 rice monetary value additions in Sri Lanka ( 12percent ) and in China ( 9 per centum ) have comparatively moderate in the 2nd half of 2010.

When monetary value of goods additions ( rising prices can be occur ) so people have to pass more money so so poorness occurs because people do n’t hold money.

But in this spastic we can reason that poorness pace is diminishing in 2008 to 2010.when poorness lessenings people have more money so poverty cut down.

Balance of payment

Figure 5 -balance of payments

Beginning: CBSL ( 2011 )

The above chart shows spastics of BOP In 2005 to 2009.In 2005, 2006, 2007

Above charts shows foreign exchange rate In 2006 is lower than 2007, 2008.so when exchange rate falls the money that comes to us from other shows a shortage.But in 2009 the lower current history shortage and the well high fiscal flows led the balance of payment to enter a significantly high excess in 2009. The positive mentality and significant

Inflows led to an unprecedented excess in the BOP, Amounting to US dollars 2,725 million in 2009.So this will assist poverty to cut down.

Beginning: CBSL ( 2011 )

Beginning: CBSL ( 2011 )

Figure 6 -major beginnings of foreign net incomes

Above charts shows foreign exchange rate In 2006 is lower than 2007,2008.so when exchange rate falls the foreign people that invest in our portion market besides cut down. By this monetary value of goods can be Increased so rising prices can be occurs because monetary value of good increased. But in 2009 and 2010 show stable foreign exchange rate so this will assist to gain more foreign earning.so this will assist to cut down poorness because when authorities have more money monetary value of goods will cut down so rising prices will cut down so people have more money.

Table 7 – macro economic variables

Economic growing rate

Figure 7 – economic growing rate

Beginning: CBSL ( 2011 )

In 2008 GDP exports of goods and services is 24.8 and in 2009 21.4, In 2008 GDP imports of goods and services is 38.5 and in 2009 is 27.9.This shows authorities imports than export that is a negative facet because we give more money out of the state that will be a cause for rising prices and that will take to poverty.

3.3 pecuniary policy

Interest rate

Salvaging and investing

Figure 8 – involvement rate

Beginning: CBSL ( 2011 )

Harmonizing to state aid scheme ( 2008 ) , nominal involvement rate on authorities securities increased aggressively during 2007, existent involvement rate have been low or negative for important parts of the past two old ages, which has made borrowing extremely attractive.

Harmonizing to state aid scheme ( 2008 ) , in 2006, cardinal bank ‘s net funding of the authorities shortage was tantamount to 1.3 of the GDP in 2007.

In the tabular array above shows statistics of develop in pecuniary sums harmonizing to the above tabular array in 2008 4.0 in 2009 35.1.in 2009 modesty money is high so when more modesty money authorities will non give out money. So people in the state have more money to pass so poverty reduces.

Beginning: CBSL ( 2011 )

Figure 9 -savings and investing

In 2006 to 2008 it shows increasing tendency in gross investing and gross domestic economy but in 2009 both the economy and investing is diminishing so

Harmonizing to the CBSL ( 2011 ) , the growing in the service sector decelerated to 3.3 per cent in 2009 from 5.6 per cent in 2008, chiefly due to the hapless public presentation in the wholesale and retail trade bomber -sector.

Because of the hapless public presentation money that comes to the state decreases so people in the state face rising prices that will take to poverty.

Table 8 -monetary policy

3.4 Fiscal policy

Summary of authorities financial operations

Figure 10 -summary of authorities financial operations

Beginning: CBSL ( 2011 )

Harmonizing state aid scheme ( 2008 ) , the gross GDP ratio increased from 13.7 per centum in 2003 to 15.8 per centum in2007, as revenue enhancement loopholes were closed and aggregation attempts intensified.

However, the revenue-to-GDP ratio in 2007 was 0.5 per centum points lower than in 2006.

Harmonizing to the above tabular array revenue enhancement gross in 2008 is 13.3 in 2009 14.6.so revenue enhancements in 2009 is higher than 2008 so with the additions in revenue enhancements the monetary value of goods will increase so it will do rising prices in the states besides it will take to poverty.

Figure 11 – composing of authorities recurrent outgo 2009

Beginning: CBSL ( 2011 )

Beginning: CBSL ( 2011 ) Harmonizing to above chart current transportations and subsidies increased by 11 per cent in 2009.transfers to public corporations increased by 9 per cent. samurdi programme remained the about at the same degrees 2008, at 26.9 billion RS,9.3 billion.

Harmonizing to this statistic we can reason that degree of people suffer from poorness same as 2008 to 2009.it does non cut down so people that suffer from poorness does non cut down.

Table 9 -fiscal policy

4.0 Limitation for ciphering statistic

Accuracy of statistic that taken is non proper.

Some statistic authorities take merely from specific part merely ( Colombo ) so that will non give proper statistic of the part of the state.

Some Torahs the established by the authorities will halt mensurating right statistic.

Table 10 -limitation for ciphering statistic

Decision

Harmonizing to all fact above the article of Business times ( 2010 ) “ Average income degrees in nine territories of six Sri Lankan states exceeded the national poorness line Rs.3178 in October2010 ” we can non reason this statement above is hundred per cent correct because other than CBSL statistic other study does non incorporate the same statistics.

And authorities merely take some statistics from specific part ( Colombo ) .that part may be develop than other part in the state so we can non reason the fact are hundred per cent correct.But harmonizing to statistic of 2006 to 2010 poorness shows a diminishing tendency so that is a positive end for a underdeveloped state like Sri Lanka.

Millennium Development end are Adopted by universe leaders in the twelvemonth 2000 and put to be achieved by 2015.one of mark is eradicate utmost poorness and hungriness.Sri Lanka as a developing state has half manner through achieved this millenary end.

Beginning: UNDP ( 2011 )