Macroeconomic aspect- Fiscal and Monetary policy

Source:World Economic Outlook Database October 2014. (n.d.). Retrieved March 22, 2015, from http://www.imf.org/external/pubs/ft/weo/2014/02/weodata/index.aspx

Fiscal policy and monetary policy are the two major tools for achieving macroeconomics objectives. Monetary policy is about controlling the money supply. Devaluation and revaluation of currency are tools to stabilise the economies. Through devaluation, Greece can stimulate the economy by increasing net export.

However, just like Hong Kong, Greece is under unified
exchange rate regime. The exchange rate cannot be changed by the Greece government. There are three major source of income for a country: increase in tax revenue, borrowing and printing notes for government use. 

The Greece government is currently adapting the second method. However, it is not an effective method in the long run. The government has to raise tax to pay back loan and interest in the future. Inside the Euro-zone, Greece government cannot directly print out notes from copiers to pay debts. The remaining method. According to Professor Lui, an increase in tax reduces consumption and investment. Expecting the tax rate to rise in the future, people will save more now. Due to Ricardian Equivalence, the result will be the same. In order to pay back the debts, it is more efficient for Greece to increase tax revenue now or simply reduce government expenditure. 

Nonetheless, the new Greece government refuse to do both of them. The only way left is to carry out monetary policy, which the Greece government does not have the power to do so. Facing the reality, it is time for Greece to consider leaving the Eurozone or not. 

Leaving the Euro-zone, Greece can regain the monetary independence. By printing notes, the Greece government can pay off the debts. The cost is letting the currency to devaluate. Citizens’ purchasing power will be decreased. Similarly, it is an indirect way for the government to collect tax. Leaving or not requires serious consideration. 

Nevertheless, continue borrowing money is not an effective and efficient method. Either increase tax-rate and reduce government expenditure or devaluate currency and print out notes are are possible solutions to the problem.

Work Cited:
YCR Wong. (2015). Yue Chim Richard Wong ⺩于漸 | Greece and Hong Kong – Fiscal Opposites, Same Politics « Yue Chim Richard Wong ⺩于漸. Retrieved March 3, 2015, from http:// www.wangyujian.com/?p=5844&lang=en

用經濟學做眼睛. (n.d.). Retrieved March 22, 2015, from http://www.francis-lui.blogspot.hk/2014/11/blog-post_79.html