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Help-Blunt Instrument!

  • 03-12-2008 10:01pm
    #1
    Moocawn
    Registered Users, Registered Users 2 Posts: 36 ✭


    Hi,

    I'm just wondering could anyone here shed some light on the term 'blunt instrument' in regards to economics? I think it's something to do with a sanction etc not being very specific and being very general in regards to how it is applied, any help appreciated!:)
    Tagged:


Comments

  • #2
    [Deleted User]
    Posts: 5,589 ✭✭✭ [Deleted User]


    I've never heard of it in the context of economics but essentially its like using too much force for a job required. You execute an action with a lack of precision.

    Could be, for example, banning all guns because a person was held up. Or cutting all dole payments as there was minor abuse of the system. I could be wrong though.


  • #3
    abitlonely
    Closed Accounts Posts: 165 ✭✭abitlonely


    You could describe the tools of monetary and fiscal policy as blunt instruments.
    With floating exchange rates, increased government spending 'crowds out' private investment.
    Crowding out can, in principle, be avoided if the deficit is financed by simply printing money,
    but this carries concerns of accelerating inflation.
    With fixed exchange rates, monetary policy won't increase output.
    That's IS-LM anyway.


  • #4
    MortgageBroker
    Registered Users, Registered Users 2 Posts: 60 ✭✭MortgageBroker


    Moocawn wrote: »
    Hi,

    I'm just wondering could anyone here shed some light on the term 'blunt instrument' in regards to economics? I think it's something to do with a sanction etc not being very specific and being very general in regards to how it is applied, any help appreciated!:)


    I have heard it used to describe a crude way of getting the result you want, for instance 'banks are using the blunt instrument of high rates to discourage lending'

    in that example they are not using increased underwriting/risk management or anything that would normally make sense in order to discourage lending, instead they are just using high interest rates rather than the traditional working methods such as greater focus on repayment capacity etc.

    in that exmaple 'high interest rates' are a blunt instrument, equally, ECB rate changes are a blunt instrument, imagine trying to build a house when the only tool you have is a hammer.

    Rates can only do one of three things, go up, go down, or stay the same, ECB tries to normalise the whole of the EU economy using only one tool which is the interest rate and its used in conjunction with core inflation. again, this would be a 'blunt tool'


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