Question

Covid-19 has wreaked havoc on the world's economy. According to the latest IMF estimates, the global economy will shrink by 3% this year and that the global economic output will tumble by about $9 trillion over two years. Oman has not been immune either from this global economic slowdown. In the current economic conditions, whether Oman should adopt a simulative or a restrictive monetary policy? Given your chosen policy, what monetary actions would you recommend to the Central Bank of Oman?

Answer 1

Solution:

Stimulative monetary policy is the policy that is used to stimulate the economy by lowering the interest rate and quantitative easing.

Restrictive monetary policy is the policy when the central bank feels that the economy is growing at a very high rate. This can be achieved by reducing the liquidity and making interest rates high so that lending can be tough.

So the Central bank of Oman should use stimulative monetary policy and do these things

• Decrease the interest rate
• Quantitative easing (Increasing the money in the economy)
• Increased government spending