Reference no: EM132683109

Question - As a manager of a large financial institution in the Philippines, one of your assignments is to monitor the economic conditions of the country. The outcome of your monitoring will be used to forecast the demand of securities sold by your firm.

You realize that the Bangko Sentralng Pilipinas (BSP) implements monetary policy and that the government implements fiscal policy to affect both economic growth and inflation. Although the BSP is often said to be independent of the administration in office, there is much interaction between monetary and fiscal policies. Moreover, it is difficult to achieve high economic growth without igniting inflation.

The economy is currently stagnant due to the coronavirus outbreak. Some economists are worried about the possibility of a recession, an economic decline which reduces the trade and industrial activity in the country. Yet some industries are experiencing high growth, such as online selling. Also, inflation this year is higher than the previous five (5) years.

You also heard that the term of the current Governor of the BSP will expire in four (4) months and that the President will have to appoint a new Chairman. However, it is widely known that the current chairman would like to be reappointed. Moreover, there will be a government election next year.

Questions -

1. Given the circumstances, do you expect that the administration will be more concerned about increasing economic growth or reducing inflation?

2. Given the circumstances, do you expect that the BSP will be more concerned about increasing economic growth or reducing inflation?

3. Your firm is relying on you for some insight on how the government will influence economic conditions and hence the demand for your firm's securities. Given the circumstances, what is your forecast of how the government will affect economic conditions?