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MONETARY POLICY AN INTRODUCTION PART 1 BY AYUSSH SANGHI
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PURPOSE OF MONETARY POLICY Monetary Policy is all about stabilising the volatile prices. Price volatility is one of the challenges faced by most of the countries in the world. * In order to arrest the price fluctuations in the system the economic policies like monetary policy are used
MONETARY POLICY k The role of the central bank of any country is decisive in the socio-economic front to ensure price stability which is caused by: inflation deflation Price stability is the pre-requisite condition for sustaining long term economic growth.
MONETARY POLICY * The monetary mechanism, headed by the Central Bank of any country, is the way in which changes in the money supply affect the rest of the economy. * Good banking structure with strong central bank is essential to: control inflation and deflation and * maintain financial conditions for sustaining growth.
WHAT IS MONETARY POLICY? * Monetary policy is the process by which: * the monetary authority of a country controls the supply of money * by targeting a rate of interest for the purpose of promoting economic growth and stability
WHAT IS MONETARY POLICY? * The goals of MP is: * stabilise the prices and * reduce the unemployment levels
TYPES OF MONETARY POLICY k Monetary policy is of various types: * Expansionary Monetary Policy * Contractionary Monetary Policy
EXPANSIONARY MONETARY POLICY * When an economy adopts such MP, it's focus is to increase the total supply of money in an economy faster than usual. * EMP is used to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expand operations and provide more employment.
CONTRACTIONARY MONETARY POLICY * When an economy adopts such a MP it's focus is to decrease the total supply of money in an economy * CMP is used when there is too much money supply in the economy * Too much money supply increases the problem of inflation. * In order to reduce inflationary impact central bank increases interest rates in the hope that credit will become difficult and MS will reduce.