BBA 1st Year Business Environment FEMA Long Question Answer

Measures of SCC [selective credit control] are as follows:

(a) Direct Controls: When all methods are ineffective, the monetary authorities resort to direct control measures. The measures are resorted to, when the commercial do not follows the instructions issued by the Central Bank.

(b) Moral Suasion: It is a method of persuading and convincing the commercial banks to advance credit in accordance with the Central Bank in the economic interest of the country. Under this, the Central Bank writes letter of and hold meetings with banks on money and credit matters and pursue them to follow the credit policy.

(c) Credit Rationing: When there is shortage of institutional credit for the business sector, the strong sector captures a major portion in the total institutional credit. Hence, weaker sectors are starved of necessary funds. In this method the Central Bank can fix the quota of credit for banks.

(d) Change in Lending Margins “Lending Margin” is the difference between the values of the mortgaged property and amount advanced.

The bank provide loans only upto a certain percentage of the value of the mortgaged property. The RBI by increasing the lending margin can control the expansion of credit.

Structural Adjustments and Monetary Policy

The structural adjustment program has redefined the objectives and instruments of monetary policy. The major considerations which underline the monetary policy in recent years are:

(i) Bringing about a declaration in the monetary expansion.

(ii) Reducing the monetary deficit, i.e., printing of new currency consistent with the government objective of bringing down fiscal deficit.

(iii) Boosting exports in order to alleviate the problem of external payments deficit.

Q. 2. What do you understand by fiscal policy? What are the objectives and instruments of fiscal policy?

Ans. Fiscal policy is considered to by an integral part of public finance as it deals with the effects of financial operations of the government on the various aspects of the functioning of the national economy, such as prices, employment, consumption, production, distribution of wealth, etc. It is also called budgetary policy. In simple words, it embraces the tax and expenditure policies of the government. Economists have defined the fiscal policy as a policy of government where it uses its options of raising revenue and incurring expenditure to produce desirable effects and avoid undesirable effects on various aspects of economy like national income, production and employment.

Economists have defined the Fiscal Policy as follows:

“‘Fiscal policy means public expenditure and tax policy.” —Paul Samulson

 “A policy under which the government uses expenditure and revenue programmes to produce
desirable effects and avoid undesirable effect on the national income, production and employment”.—Arthur Smiths

Objectives of Fiscal Policy Fiscal policy subscribes to the following and major macroeconomic goals:

Leave a Comment

Your email address will not be published. Required fields are marked *