Your task in the assignment is to:
• Research the economic theory of how fiscal and monetary policy influence aggregate demand and in turn how they may affect the four key economic targets of sustainable growth, low inflation, low unemployment and external balance.
• You will need to find data / graphs/ tables and evidence that relates to the economic performance of the Mexican economy in recent years ( and in detail over the last two years).
Key points to consider:
• How each policy seeks to affect aggregate demand.
• Any undesirable side effects of monetary and fiscal policy.
• How the Government of Mexico and the Central Bank has used policy to control the economy.
• How effective each policy has been in meeting the government’s aims
Then write a formal report of 1,500 – 2,000 words that:
1. Evaluates the effectiveness of the Mexican government’s use of Fiscal and Monetary policy over the last four or five years in achieving the four macro economic objectives. (You may want to indicate how far the pandemic has delayed or in any way affected these policy measures).
You should pick specific fiscal or monetary policies implemented since 2016 and use both your economic knowledge and theory and actual research facts and figures to support your opinion of the effectiveness of the policy. Please DO NOT just provide a historical description – it is your assessment of the government that is required.
2. Suggest what you believe would be the best way for the Mexican government to use both fiscal and monetary policy to meet the four key targets simultaneously in its present situation.
• Make sure you make full use of AD/AS diagrams in your report and always include and introduction and conclusion!
Your definitions and explanations of fiscal and monetary policies should be compact and focused on how these apply to policies. You do not need to use a substantial number of words in defining fiscal and monetary policies in general.
Include a bibliography and ensure all charts, data, quotes, etc. are referenced where you use them AND in the bibliography.
One article is provided below but data, graphs, table and evidance to support point of views from at least 4 other reliable sources are crucial.
Mexico’s divided economy
The latest OECD Economic Survey of Mexico discusses the links between low living standards and stagnant productivity, poor educational outcomes, weak rule of law, obstacles to competition and widespread informality. The Survey projects growth of about 1.6% this year and 2.0% in 2020, in the context of a slowing world economy and persistent trade tensions that risk disrupting exports, private sector investment and global value chains.
The Survey, presented in Mexico City by OECD Secretary-General Angel Gurría and Mexican Finance Minister Carlos Urzúa discusses the need to address the growing divide between the more modern and productive economy in the north and centre of the country and the more traditional economy in the south, which is a source of both inequalities and poverty. It also looks at how implementation of recent reforms, institutional improvements and changes to the tax and transfer system can better support more inclusive and sustainable growth.
A new tax reform is needed to improve collection, limit evasion and ensure financing for infrastructure investment and policies to reduce poverty and inequality. The Survey suggests a comprehensive medium-term tax and benefits reform should seek to broaden the value-added tax base, by cutting exemptions and abolishing reduced rates while compensating low-income households with targeted subsidies. It also suggests adding greater progressivity to the personal income tax system, via a lower income threshold for the top rate and further cutting back tax allowances and making better use of taxes on immovable property. Continuing efforts are needed to reduce duplication of social programmes and beneficiary overlaps while expanding coverage to the poor not already receiving benefits, the Survey said.
Reforms are also needed to reduce Mexico’s persistently high informality, which constrains productivity growth and the government’s fiscal capacity to provide public benefits and redistribute. A coordinated approach to reducing informality should ease the administrative burdens of doing business. Lowering tax compliance costs, reducing the cost of creating new jobs and reduced social security contributions for low-wage earners are all identified as desirable and possible.
Better educational outcomes will help fight persistent inequalities and boost productivity growth. Education spending should be re-focused on early childhood, pre-primary, primary and secondary education, and more should be done to increase the capacity of schools in poor neighborhoods and to support students from disadvantaged backgrounds, the Survey said.
Integrating environmental and metropolitan governance concerns into policy making has wide scope to improve both economic and environmental outcomes. Reforms in the governance of large metropolitan areas would enable local governments to plan land use, public transport and housing in an integrated manner, boosting productivity and lowering congestion and air pollution, which affects low-income households the most.