Case Analysis
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 Sentral ng
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?
It is not good for the economy or individuals if there is a high inflation rate. Inflation will always
reduce the value of money, unless interest rates are higher than inflation. And the higher
inflation gets, the less chance there is that savers will see any real return on their money so I expect
the administration to concerned about reducing inflation.
2. Given the circumstances, do you expect that the BSP will be more concerned about increasing
economic growth or reducing inflation?
If inflation spiked in which it could cause the economy to slow down quickly and unemployment