Economics Assignment

EVERY NATION POLYTECHNIC - BO
EQUIPING LEADERS FOR EFFECTIVE SERVICES
DEPARTMENT OF SOCIAL AND MANAGEMENT SCIENCE
Course
ECONOMICS
Tutor: Mr Ellie
Table of Contents
ASSIGNMENT TOPIC ................................................................................................................................................. 3
GROUP 5 MEMBERS ................................................................................................................................................. 4
DEFINITION OF MONETARY POLICIES .............................................................................................................. 5
MONETARY POLICY TOOLS ................................................................................................................................ 5
MONETARY POLICY OBJECTIVES: .............................................................................................................. 6
CHALLENGES AND LIMITATIONS OF MONETARY POLICY: ............................................................... 6
DEFINITION OF FISCAL POLICY ........................................................................................................................... 6
FISCAL POLICY TOOLS......................................................................................................................................... 6
FISCAL POLICY OBJECTIVES: ....................................................................................................................... 7
FISCAL POLICY EFFECTS: .............................................................................................................................. 7
CHALLENGES AND LIMITATIONS OF FISCAL POLICY: ........................................................................ 7
References: ....................................................................................................................................................................... 8
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ASSIGNMENT TOPIC
1. Discuss monetary and fiscal policies
2. Explain the tools/instruments used in each of the policies to control
money supply by the central bank of Sierra Leone
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GROUP 5 MEMBERS
NAME ID. NO
Rachael Beahai 2576
John Kallon
Patricia Koroma
Mamie Koroma
Momodu Barjohn
Fatmata Kargbo
Marrah Tenneh
Yatta Kabba
David Gandi
Bindia Koroma 2544
Fatmata Koroma 2545
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DEFINITION OF MONETARY POLICIES
Monetary policies refer to the management of money supply and interest

rates by central bank to control inflation, manage employment levels and
maintain financial stability.
MONETARY POLICY TOOLS

The central Bank of Sierra Leone uses various tools in monetary policies to
control the money supply and maintain economic stability; below are
explanation of these tools.
1. INTEREST RATE ADJUSTMENT; (BANK RATE/POLICY RATE):

The Bank of Sierra Leone sets the policy rate which influences the
interest rates that commercial bank charges their customers. By
lowering the policy rate, the Bank of Sierra Leone can make borrowing
cheaper, encouraging spending and investment. Conversely, raising
the rate can help cool down inflation by making borrowing more
expensive.
2. OPEN MARKET OPERATIONS (OMO):
The Bank of Sierra Leone buys or sells government securities in the
open market. Buying securities injects money into the banking system,
increasing the money supply. Selling securities withdraws money from
circulation, reducing the money supply.
3. RESERVE REQUIREMENTS:
The bank of Sierra Leone can change the reserve requirements for
commercial banks, by lowering the reserve ration, banks have more
money to lent out, which increases the money supply. Raising the
reserve ratio does the opposite.
4. MORAL SUASION:
The Bank of Sierra Leone may use moral suasion to influence banking
practices by advising and persuading banks to adhere to certain
policies or guidelines without changing laws or regulations.
5. STANDING FACILITIES:
The bank of Sierra Leone provides short term loans to commercial
banks through facilities like the Lombard facilities, which helps ensure
liquidity in the banking system. The terms of these loans can influence
how much banks are willing to lend to consumers and businesses.
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MONETARY POLICY OBJECTIVES:
The primary objectives of monetary policy are:
1. Price Stability: Maintaining low and stable inflation rates.

2. Maximum Employment: Promoting job creation and low unemployment.
3. Economic Growth: Encouraging sustainable economic growth and
development.
CHALLENGES AND LIMITATIONS OF MONETARY POLICY:

Monetary policy faces several challenges and limitations, including:
1. Time Lag: Monetary policy changes can take time to affect the economy.
2. Uncertainty: The impact of monetary policy on the economy can be
uncertain.
3. Inequality: Monetary policy can have unequal effects on different
segments of the population.
DEFINITION OF FISCAL POLICY
Fiscal policies refer to the use of government spending and taxation to

influence the overall level of economic activity, with the goal of achieving
economic growth, stability, and low unemployment. Fiscal policies are
implemented by the government, in contrast to monetary policies, which are
implemented by the central bank.
FISCAL POLICY TOOLS

While the central bank primarily handles monetary policy, fiscal policy in
Sierra Leone is managed by the government, particularly the ministry of
finance. Here is the fiscal policy tools used to influence the economy
1. GOVERNMENT SPENDING:
direct spending on goods and services, infrastructure, education and
healthcare can stimulate economic activity.
2. TAXATION:
Adjusting tax rates influence consumers and business spending.
Lower taxes increases disposable incomes and stimulate spending,
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while higher taxes can reduce spending and cool off and overheating
economy.
3. TRANSFER PAYMENTS:
Welfare programs, unemployment benefits and social security
payments can redistribute income and support aggregate demand
FISCAL POLICY OBJECTIVES:

The primary objectives of fiscal policy are:
1. Economic Growth: Promoting sustainable economic growth and

development.
2. Full Employment: Achieving low unemployment rates and creating
jobs.
3. Price Stability: Maintaining low and stable inflation rates.
4. Redistribution of Income: Reducing income inequality by
redistributing wealth from the rich to the poor.
FISCAL POLICY EFFECTS:

Fiscal policy can have various effects on the economy, including:
1. Multiplier Effect: An increase in government spending or a tax cut

can lead to a multiplier effect, where the initial injection of funds leads
to additional rounds of spending and economic activity.
2. Crowding Out: An increase in government spending can lead to
crowding out, where the government competes with the private sector
for resources, potentially reducing private investment.
3. Fiscal Multiplier: The change in aggregate demand resulting from a
change in government spending or taxation.
CHALLENGES AND LIMITATIONS OF FISCAL POLICY:

Fiscal policy faces several challenges and limitations, including:
1. Time Lag: Fiscal policy changes can take time to affect the economy.
2. Political Constraints: Fiscal policy decisions are often influenced by
political considerations, which can lead to inefficient or ineffective
policies.
3. Deficit and Debt: Fiscal policy can lead to budget deficits and an
increase in national debt, which can have long-term consequences for
the economy. In conclusion, fiscal policy plays a crucial role in
promoting economic stability and growth.
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References:
 Wikipedia
 AI Chat GPT
 Federal Reserve Bank of USA
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EVERY NATION POLYTECHNIC - BO

EQUIPING LEADERS FOR EFFECTIVE SERVICES

DEPARTMENT OF SOCIAL AND MANAGEMENT SCIENCE

Monetary policies refer to the management of money supply and interest

MONETARY POLICY TOOLS

1. INTEREST RATE ADJUSTMENT; (BANK RATE/POLICY RATE):

1. Price Stability: Maintaining low and stable inflation rates.

CHALLENGES AND LIMITATIONS OF MONETARY POLICY:

DEFINITION OF FISCAL POLICY

Fiscal policies refer to the use of government spending and taxation to

FISCAL POLICY TOOLS

FISCAL POLICY OBJECTIVES:

1. Economic Growth: Promoting sustainable economic growth and

FISCAL POLICY EFFECTS:

1. Multiplier Effect: An increase in government spending or a tax cut

CHALLENGES AND LIMITATIONS OF FISCAL POLICY:

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