Sample interview questions: How do you assess the impact of fiscal policies on the financial sector?
Sample answer:
Assessing the Impact of Fiscal Policies on the Financial Sector
1. Direct Government Intervention:
- Government spending and tax policies directly affect the demand for financial services, such as lending and investment.
- Increased government expenditure can stimulate economic growth, boosting demand for loans and capital.
- Tax incentives for specific industries or investments can influence the allocation of financial resources.
2. Interest Rates and Liquidity:
- Fiscal policies impact interest rates through government borrowing and issuance of treasury bonds.
- Large-scale government borrowing can increase competition for funds and push interest rates upward.
- The central bank may adjust interest rates to accommodate fiscal policy shifts and maintain financial stability.
3. Credit Availability and Risk Appetite:
- Government guarantees or subsidies on loans can lower the cost of credit for businesses and consumers, increasing access to financing.
- Fiscal policies that reduce the perceived risk of lending, such as deposit insurance or capital injections, can encourage banks to expand lending.
- Conversely, fiscal deficits and high levels of government debt can increase perceived risk and reduce credit availability.
4. Financial Markets:
- Fiscal policies can affect stock and bond markets by altering investor expectations about economic growth, inflation, and interest rates.
- Government interventi… Read full answer
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