Economics in Papua New Guinea

1. What is fiscal policy?

The use of the government’s tax and spending polices in an effort to influence the behavior of such macro variable as GDP and total employment. The GDP means G-gross, D- domestic, P- product.

 

What are the functions of the fiscal policy in Papua New Guinea? The following points outline for the fiscal policy of economics in Papua New Guinea.

1.The government spending and taxation to influence the economy

2.Control employment and increase economic activities

3.Decreasing income tax increases disposable income, increase consumption and stimulates the economy

4.Income tax is progressive while company profit tax is proportional

5.The promotion of research into Papua New Guinea society and economy

6.The undertaking research into social, political and economic problems

 

The purposes of the fiscal policy in Papua New Guinea?

The use of government spending and taxation to influence the economy. Government typically use fiscal policy to promote strong sustainable growth and reduce poverty.

 

Why is fiscal policy implemented in Papua New Guinea?

The effort to increase public governance are gradually bolstering confidence in Papua New Guinea’s economy, despite national performance being heavily dependent on somewhat- unpredictable extractive industries.

 

Why is fiscal policy important in Papua New Guinea?

Because fiscal policy is the use of government spending and taxation to influence the economy and government expenditure and taxation has direct bearing on budget outcomes that, in turn, affects the level of government debt.

 

What is monetary policy?

The monetary policy is an attempt to influence the economy by operating on such monetary variables as the quantity of money and the rate of interest.

 

What is the function of the monetary policy in Papua New Guinea?

1.Monetary policy should try to maintain in the economy a most suitable interest rate structure

2.A foundation for stable fiscal operation of the government

3.Confidence in the kina exchange rate and management of the economy

4.Certainty for business to plan for long- term investment

5.A stable macroeconomic environment conducive to economic growth

6.Open market operation is the buying and selling of government 

 

What are the purposes of monetary policy in Papua New Guinea?

the main purpose of monetary policy is to manage economic fluctuation and archive price stability, which means that inflation is low and stable. Central banks in many advanced economics set explicit inflation target and aims to influencing the supply of money or price of money, which is the interest rate, which in turn influences the demand for money.

  

Why does monetary policy implement in Papua New Guinea?

Because monetary policy is one of macroeconomic policies use by the government to primary influence changes in price and ensure financial stability and, secondarily to support economic growth. Monetary policy is the responsibility of monetary authority of a monetary or central bank of Papua New Guinea.

 

Why is monetary policy important in Papua New Guinea?

Because central bank uses monetary policy to manage economic fluctuation and achieve price stability, which means that inflation is low stable.

 

Summary notes for fiscal policy

The following are the summary notes for fiscal policy in Papua New Guinea:

·         Fiscal policy is the use of government sending and taxation to influence the company. It is formulated by the government by adjusting the rate of tax and the level of government expenditure through the annual budget.

·         The three types of budgets are surplus, deficit and balanced budget.

·         A surplus budget is a restrictive policy use to control inflation and deflate economic activities.

·         Surplus budget is when the government’s income in more than its spending.

·         Balance budget is when the government’s income is equal to its spending.

·         A balance budget is appropriate in an economy where there is no need to change the economic activities.

·         Taxation is the compulsory transfer of wealth from the private sector to the government.

·         Governments impose tax to raise revenue, discourage production and consumption of certain goods and services, to redistribute income and to manage demand.

·         The three method of tax is proportional, progressive, and regressive.

·         In Papua New Guinea, income tax is progressive while the company profit tax is proportional.

·         Taxation is a leakage from the circular flow of income which decrease economic activities.

·         Increasing in tax decreases disposable income, decreases consumption and deflates the economy.

·         Decreasing income tax increases disposable income, increases consumption and stimulates the economy.

 

The summary notes for monetary policy

The following are the monetary policy summary notes

·         The monetary policy is a policy formulated by the central bank (BPNG) to control the amount of money in the economy and the way it is used.

·         The instruments of monetary policy are interest rates, liquid assets ratio, special deposits, moral suasion, open market operations and control over lending.

·         Interest rate is the additional per cent charged on the amount borrowed or it is the cost of borrowing.

·         High interest rates discourage borrowing which leads to a decrease in the money supply thus reducing economic activities.

·         Low interest rates encourage borrowing which leads to an increase in the money supply thus increasing economic activities.

·         Liquid assets ratio is the proportion/percentage of the total bank deposits put aside for meeting customer’s demands for withdrawal.

·         Increases in liquid assets ratio reduces the ability of the banks to give out more loans to create more credit. This will reduce the money supply and economic activities decrease.

·         Decrease in liquid assets ratio increases the ability of the banks to give out more loans to create more credit. This will increase the money supply and economic activities increase.

·         Special deposits refers to a certain percentage of the deposits in the commercial banks which a kept aside and is not for lending. This policy is not widely used in PNG.

·         Imposing or increasing special deposits reduces the ability of the commercial banks to increasing lending thus decreasing economic activities.

·         Releasing or decreasing special deposits increases the ability of the commercial banks to increase lending thus increasing economic activities.

·         Moral suasion refers to the policies between the central bank and commercial banks to control the supply of money in the economy.

·         Open market operation is the buying and selling of government securities to control the money supply.

·         Selling government securities reduce the money supply thus deflating the economy.

·         Buying government securities reduce the money supply thus stimulating the economy.

 

 

Acknowledgement:

 

Google search.  2024

 

Written by Smith Sagiang (Student Research Presentation-PNG CompuTech Training Institution-2024).