Monetary Policy is concerned with the management of the money supply in the economy.
Thank you for reading this post, don't forget to subscribe!- The primary goal of monetary policy is to maintain economic stability by controlling inflation, managing employment levels, and fostering economic growth.
- Unlike fiscal policy, which is managed by the government through changes in taxation and public spending, monetary policy is typically managed by central banks.
Types of Monetary Policy:
1.) Expansionary Monetary Policy:
- An Expansionary Monetary Policy is an action taken by the monetary authority i.e. Central Bank to increase the money supply.
1.) Contractionary Monetary Policy:
- An Contractionary Monetary Policy is an action taken by the monetary authority i.e. Central Bank to decrease the money supply.
Instruments of Monetary Policy:
- General Instruments:
- Open Market Operation
- Bank Rate
- Minimum Reserve Requirement
- Selective Instruments:
- Margin Requirement
- Regulation of consumer credit
- Rationing of Credit
- Moral Suasion
- Use of Publicity
- Direct Action
- Interest Rate Ceiling
Objectives of Monetary Policy:
- Full employment
- Price stability
- High economic growth
- Balance in external payment and stable exchange rate
- To reduce economic inequality