Essay on Use of Fiscal and Monetary policy to increase the standards of living in Saudi Arabia

Saudi Arabia has a fixed currency rate that is sometimes beneficial for the country or the state. The fixed currency rate means that the state is selling its own currency or buying its open currency in the global market. In this way, the currency of the state rotates in the state generating more revenue for the state and is also beneficial for the state as the currency of the state is not revolving out of the country. And the Saudi Government sells its reserves of the oil in the market and then buy it own reserves. This is how the fixed economy is beneficial for the economy. Saudi Arabia is a country with its economy that structured as an oil-based economy, in which Saudi Arabia mostly relies on the revenue that is generated from the selling of the oil reserves. Due to the selling of these oil reserves Saudi Arabia generated 87% of the total revenue during the years of 2003-2011. The fixed exchange rate policy of Saudi Arabia has shown this reality to the world that if Saudi Arabia has adjusted the exchange rate then this adjustment has no effect on the competitiveness of the exports of Saudi Arabia. Fiscal Policy can help Saudi Arabia country to increase the living standards by giving the authority to the government to check and to adjust the levels of the spending and to adjust the tax rates as well so that the government can influence and improve the economy of the nation. By looking at all the spending’s the nation is doing and what are the taxes included an economy can be improved. Fiscal policy can help Saudi Arabia to maintain the full employment condition, to make the economy much more stable and by stabilizing the economy, the rate of the growth will also be stabilized. As Saudi Arabia is facing some crisis these days, so the fiscal and the monetary policy will help Saudi Arabia in maintaining the economy of the balance once again. As well as the monetary policy also helps in providing a balance in the economy and also improving the standards of living. If the banks that doing their businesses in Saudi Arabia take the actions and communications with the other countries then it can manage the money supply. Because the central banks of any state, uses the bank reserves, the interest rates, the amount of the government bonds. Monetary policy governs in the supply of the money so that it handles the consumption of the money by the people living on the state and the growth and as well as it controls the inflation as well. All these things have the capability to improve the living standards of the Saudi citizens. (Banafe, Monetary policy instruments and procedures, 2018)

The following two tools are used by different countries and state to achieve some objectives of the macroeconomic and to stable the economy, these two tools are mentioned as the  and the  policy. These two tools could be used to stable and support the performance of the country’s economy. The primary purpose of the  in a state is actually to increase the total production and the outputs of the economy of any state. And the main goal of the monetary policy is to look over the inflation rates and the inters rates and control them. Both these policies are under national government control. Fiscal policy and monetary policy are both related to each other. Fiscal policy defines how the government is responsible for keeping the economy stable, and the fiscal measure is then used frequently in contrary to the monetary policy to define and achieve some certain goals of the country. Both the policies have certain goals to be achieved including; maintaining economic growth and make sure it is in a high rate, and also to maintain full occupation, as well as to stable the wages and the prices in an economy. (Debrun, 2015)

Both financial and monetary arrangements are utilized to manage financial action after some time. They can be utilized to quicken development when an economy begins to ease back or to direct development and movement when an economy begins to overheat. Furthermore, the monetary strategy can be utilized to redistribute salary and riches.

The larger objective of both the policies is typically the making of a monetary domain where development is steady and positive and swelling is steady and low. Significantly, the point is thusly to guide the basic economy with the goal that it doesn't encounter monetary blasts that might be trailed by broadened times of low or negative development and elevated levels of joblessness. In such a stable financial condition, householders can have a sense of safety in their utilization and sparing choices, while companies can focus on their venture choices, on making their ordinary coupon installments to their investors and on making benefits for their investors.

The difficulties of accomplishing this larger objective are many. Not exclusively are economies as often as possible pounded by stuns, (for example, oil value bounces). However a few financial specialists accept that common cycles in the economy additionally exist. In addition, there are a lot of models from history where government approaches—either money related, monetary, or both—have exacerbated a financial extension that in the end prompted harming ramifications for the genuine economy, for budgetary markets, and for speculators.

These goals can be achieved if the economy and the government of a country is stable. If the government is not sable then it cannot support the different business and organizations that promote the growth of the economy and most of the unemployed country does not get any employment and the unemployment rate of the country will gradually increase. Moreover, inflation and deflation should be controlled in any state. All these things help to define the goals of the monetary and fiscal policy and the government should support it. (HAYES, 2019)

The challenges to achieving the goals of the fiscal policy are discussed.

In order to impact the GDP’s reduction and also its expansion, as well as measuring the economic growth of a country, fiscal policy can be utilized. On the other hand, when government is doing some practices and exercises by increasing the expenditures of the government and lowering the taxes, this situation labeled as the progression of fiscal policy. The government is practicing the expository fiscal policy by increasing expenditures and lowering taxes.  But on the other side, these expansionary efforts have a positive impact on the economy and this positive impact is a dominating impact that is greatly wider. The minute the government is using the resources at a rate much quicker than these resources can replenish including the spending rate of the government which is much faster than the rate of the tax revenues that can government can collect in the meantime, in this way, the government is accumulating the excess debt and this excess debt is used as an interest baring bonds so that these bonds will finance the spending’s.

At the time when the government builds the responsibility extension, it also addresses during an  financial approach, which providing securities within a free market would possibly set-up challenging with the reserved segment that might as well requisite to give securities simultaneously. This influence which also known as swarming out, has the capability to raising up the rates in an indirect method in view of the extended challenge meant for achieved assets. Notwithstanding of no matter the upgrade prepared by the extended government expenditure has a number of fundamental transient valuable results, a part of this monetary development might be alleviated by the strain brought about by greater secrecy costs meant for debtors, as well as the government. (Kuligowski, 2019)

The problems that a country or a state might face while achieving the goals of the monetary policy are discussed. At the time when the costs of loan are fixed to be extremely low, over-obtaining at deceptively uncertain rates might appear. This condition then has the capability in causing a hypothetical air pocket, in which there is a rapid and preposterous costs increment appears at major levels. Tallying extra cash to the economy would as well risk that might trigger crazy swelling due to the market interest reason: in case if there is an availability of more cash accessible to be used, then the valuation of each cash unit will get weakened, given an unchanged interest amount, benefitting allegedly increasingly overpriced.

Notwithstanding of if there is a rapid execution, the  influences of money related arrangement generally appear right after some duration. The influences on an economy might even take months or a quite more than that to occur. Some financial professionals accept cash is  and they have always been keeping in their mind that, serving would invigorate an economy in the brief-run, and it has no long-run influences notwithstanding from floating the broad costs amount without enhancing open financial income.

The costs of loan should be brought allegedly fall to 0%, which would restrain the bank's application of this approach device at the time the costs of financing are low. Maintaining the rates extremely low for overdue timeframes would able to rapid a fluidity deception. This situation will all together create fiscal arrangement devices further viable during monetary expansions rather than downturns. A number of European state banks have commencing late tried diverse things with a (NIRP), however the results would never be recognized for some relative time to arrive.

Money-related tactic apparatuses, for instance, the levels of financing cost have an economy-wide consequence and they do not signify the reality since certain regions in the country probably would not oblige the improvement. On the other hand, the countries with extreme redundancy might need more improvement. It is furthermore extensive as in money-related apparatuses are unable to be synchronized to tackle a specific concern or else, boost a specific business or area. (Banafe, 2018)

The tools that can be used to implement the Fiscal Policy are as follows. There is a need for change of the fiscal policy when an economy is coming up short on total interest and joblessness levels are high.

The two primary devices of financial approach are the spendings and the expenses. Duties have an impact on the economy. There is an influence of the tax on the economy and this determines how much of the money is spent by the individuals and how much of the money the government should spend in some areas. From an example, we can justify this statement that if the spending from the government is done on the individuals then this spending can decrease the taxes. If there is cut in the taxes then this will be beneficial for the families as it facilitates the family with the extra money and this extra money might be spent on some services and the goods according to the hopes of the government. And all these things will boost up the economy.

Spending is more commonly used as a fiscal policy tool that is used to drive the money of the government to different sectors that need an economic boost to run the organization and contribute to the economy of the country. The person or the organization that receives these dollars will automatically have benefit because they have got the extra money that they can use and together with the taxes, the government actually has a hope that this money and the dollars can be spent on purchasing some goods and on getting any services. (Debrun, 2015)

The key is ensuring the economy and to find the equalization that is correct, and the economy should not go much distant in any condition.

In order to accomplish the objectives of the , the Fed can utilize four major tools; , ,  as well as the . All these four tools are responsible for affecting the banking system funds and the amount of the funds.

·         Basically, reserve requirements are the cash that a bank holds and this cash is the portion of the deposits and this cash is saved either one in the crypts or maybe at a  in a deposit. At the time there is a decline in the , this requirement is expansionary for the reason that this expansion is responsible for the increase of the funds that are available in the banking systems so these funds can be lent to other businessman and the consumers. To change the reserve requirements, the Board of the Governor has the authority to change. But on the other hand, Fed does not change the reserve requirements more openly.

·     The  are basically the buying and selling of the of the securities of the United States Government because it has been a faithful instrument and is reliable as well. This tool is given by the FOMC and then this tool s further accepted and practiced by the  in New York named the .

·         Next is the interest on the reserves, and this tool is new in this industry and this tool is directed by the Congress to the Fed after some issues and the financial crisis that occurred during the years of 2007 to 2009. And the interest on these assets is remunerated on the reserves alleged by the  that are excess. As we have studied earlier, that Fed allows the bank to hold some of the deposits in the form of the reserves. And when the bank holds these reserves, the bank also reserves some extra funds on these reserves as well. And now according to the current, up to date policy, that it is necessary to pay reserves on the interest, this consents the Federal to apply the interest as a  tool that also impact the bank loaning as well.

·     The last one is the rate of discount, rates to the interest rate directed by the  for the profitable banks meant for the loans that are for the short term. (HAYES, 2019)

Conclusion of Use of Fiscal and Monetary policy to increase the standards of living in Saudi Arabia

By using the entire tools of both  and we would be able to increase the living standards of the Saudi Arabia citizens under static exchange rate. Under the fixed exchange rate, the currency of the Saudi Arabia rates within the country and the monetary and the fiscal policy can be implemented on the rotating currency and by implementing these policies I will control the consumption of the currency and it will also look upon the other factors of the economy that supports the economy and the bank factors as well.

References of Use of Fiscal and Monetary policy to increase the standards of living in Saudi Arabia:

Banafe, M. A.-J. (2018). Monetary policy instruments and procedures. 206-220.

Debrun, X. (2015, April 10). How can we use fiscal policies to stabilise the economy? Retrieved from weforum.org: https://www.weforum.org/agenda/2015/04/how-can-we-use-fiscal-policies/

HAYES, A. (2019, June 25). Fiscal Policy vs. Monetary Policy: Pros & Cons. Retrieved from investopedia.com: https://www.investopedia.com/articles/investing/050615/fiscal-vs-monetary-policy-pros-cons.asp

Kuligowski, K. (2019, June 14). What Is Fiscal Policy? Retrieved from businessnewsdaily.com: