1.

It is a tool by which a
government adjusts its spending
levels and tax rates to monitor
and influence a nation's economy.
A.Fiscal
A. Fiscal Policy
Policy
B. Monetary Policy
C. Government Policy
D. None of the above
2. It includes the management of
money supply and interest rates,
aimed at achieving macroeconomic
objectives such as controlling
inflation, consumption, growth, and
B.
liquidity. Monetary
A. Fiscal Policy
Policy
B. Monetary Policy
C. Government Policy
3. The mandates of this policy are to
achieve a stable rise in the gross
domestic product, maintain low rates of
unemployment, and maintain foreign
exchange and inflation rates in a
B. Monetary
predictable Policy
range.
A. Fiscal Policy
B. Monetary Policy
C. Government Policy
4. His theories have been used
as the basis for fiscal and
monetary policy.
A. Adam Smith
B. David
C. JohnRicardo
Maynard
Keynes
C. John Maynard Keynes
D. Karl Marx
5. This theory states that the
government can influence
macroeconomic productivity levels by
increasing or decreasing tax levels and
public spending.
A. Laissez-faire
B. Invisible Hand
D. Keynesian
C. Game Theory
D. Keynesian economics
Word Hunt
Directions: Find the words that are related
to production theory in the puzzle below.
Encircle the 10 terms in the word search
box.
Socioeconomic Factors Affecting
Business and Industry:
Government Policies
Since the country runs a mixed
economy, government intervention
is needed to achieve the economic
goals.

The government uses two tools in

addressing the economic and
social problems in the country,
these are monetary and fiscal
Monetary policy refers to the actions of
central banks to achieve macroeconomic
policy objectives such as price stability, full
employment, and stable economic growth.

Fiscal policy refers to the tax and

spending policies of the government.
Fiscal policy decisions are determined
by the Congress and the
Administration;

the Banko Sentral ng Pilipinas plays

no role in determining fiscal policy.
Fiscal
Policy
Fiscal policy is a tool by which a
government adjusts its spending
levels and tax rates to monitor and
influence the nation's economy.

Fiscal policy is based on the

theories of British economist John
Maynard Keynes, known as
This theory states that the government
can influence macroeconomic productivity
levels by increasing or decreasing the tax
levels and public spending.

This can influence the curbs of inflation,

increases employment, and maintains a
healthy value of money.

Fiscal policy plays a very important role

The enactment of Tax Reform for
Acceleration and Inclusion
(TRAIN) is one of the examples of
fiscal policy.

The TRAIN Law aims to make the

country’s tax system simpler,
fairer, and more efficient to
The reform includes amendments on the
personal income tax, passive income for
both individuals and corporations, estate
tax, donor’s tax, value-added tax (VAT),
excise tax, documentary stamp tax, and
tax administration, among others.
The idea is to find a balance between
tax rates and public spending.

For example, stimulating a stagnant

economy by increasing spending or
lowering taxes, also known as
expansionary fiscal policy, runs the
risk of causing inflation to rise.
This is because an increase in the amount
of money in the economy, followed by an
increase in consumer demand, will result
in a decrease in the value of money.

It means that it would take more money to

buy something that has not changed in
value.
Let's say an economy has slowed down, the
unemployment levels are up, the consumer
spending is down, and the businesses are not
making substantial profits.

The government may decide to fuel the

economy's engine by decreasing taxation, which
signals the consumers to spend more while the
government increases also their spending in the
form of buying services from the market such as
building roads or schools.
By paying for such services, the
government creates jobs and wages
that are in turn pumped into the
economy.

Pumping money into the economy by

decreasing taxes and increasing
government spending is known as
With more money in the economy and
fewer taxes to pay, consumer demand for
goods and services increases.

This, in turn, rekindles businesses and

turns the cycle from stagnant to active.

If there are no reins on this process, the

increase in economic productivity can
cross over a very fine line and lead to too
This excess in supply decreases the value of
money while pushing up prices (because of
the increase in demand for consumer
products).

Hence, inflation exceeds the reasonable

level.

For this reason, fine-tuning the economy

through fiscal policy alone can be a difficult,
Monetary
Policy
Monetary policy refers to the actions
undertaken by a nation's central bank to
control the money supply to achieve
macroeconomic goals that promote
sustainable economic growth.

Monetary policy consists of the process of

drafting, announcing, and implementing the
plan of actions taken by the central bank,
currency board, or other competent
monetary authority of a country that
Monetary policy consists of management
of money supply and interest rates, aimed
at achieving macroeconomic objectives
such as controlling inflation, consumption,
growth, and liquidity.

These are achieved by actions such as

modifying the interest rate, buying or
selling government bonds, regulating
foreign exchange rates, and changing the
Economists, analysts, investors, and
financial experts across the globe eagerly
await the monetary policy reports and
outcome of the meetings involving
monetary policy decision-making.

Such developments have a long-lasting

impact on the overall economy, as well as
on specific industry sector or market.
Monetary policy is formulated based on the inputs
gathered from various sources.

For instance, the monetary authority may look at

macroeconomic numbers like GDP and inflation,
industry/sector-specific growth rates and associated
figures, geopolitical developments in the
international markets (like oil embargo or trade
tariffs), concerns raised by groups representing
industries and businesses, survey results from
organizations of repute, and inputs from the
government and other credible sources.
Broadly speaking, monetary policies can be
categorized as expansionary or contractionary.

If a country is facing a high unemployment rate during

a slowdown or a recession, the monetary authority can
opt for an expansionary policy aimed to increase
economic performance and expanding economic
activity.

As a part of expansionary monetary policy, the

monetary authority often lowers the interest
rates through various measures that make
money-saving relatively unfavorable and
It leads to increased money supply in the
market, with the hope of boosting investment
and consumer spending.

Lower interest rates mean that businesses and

individuals can take loans on convenient terms
to expand productive activities and spend more
on big-ticket consumer goods.

An example of this expansionary approach is

low to zero interest rates maintained by many
However, the increased money supply can
lead to higher inflation, raising the cost of
living and the cost of doing business.

Contractionary monetary policy, by

increasing interest rates and slowing the
growth of the money supply, aims to bring
down inflation.

This can slow economic growth and increase

unemployment but is often required to tame
 Significance of the
Government Policies in
Business and Industry
Both fiscal and monetary policy plays a large
role in managing the economy and both have
direct and indirect impacts on household
finances and business operation.

Fiscal policy involves tax and spending decisions

set by the government and will impact
individuals and businesses.

If the government wants to spend more, they

will hire people and also tap businesses to carry
Moreover, if the government spends more on
infrastructure, specifically in paving roads,
transportation of goods can be fast and on time.

Monetary policy is set by the central bank and

can boost consumer spending through lower
interest rates that make borrowing cheaper on
everything from credit cards to mortgages.

It also helps businesses to lend money for

business expansion or additional capital for
Directions: Read each statement carefully. Write F if the
statement refers to fiscal policy, write M if the statement
relates to monetary policy.

____________1. The idea is to find a balance between tax rates

and public spending.
____________2. The policy is to build a new bridge so it will give
work and more income to hundreds of construction workers.
____________3. Lower interest rates mean that businesses and
individuals can takeloans on convenient terms to expand
productive activities and spend more on big-ticket consumer
goods.
____________4. When a government decides to adjust its
spending, its policy may affect only a specific group of people.
____________5. Buying and selling of short term bonds on the