What is Monetary policy? Explain the general objectives of monetary policy.
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Q. What is Monetary policy? Explain the general objectives of monetary policy. Answer: Monetary Policy
Monetary policy is a part overall economic policy of a country. It is employed by the government as an effective tool to promote economic stability and achieve certain predetermined objectives.
Meaning and Definition:
Monetary Policy deals with the total money supply and its management in an economy. It is essentially a programme of action undertaken by the monetary authorities generally the central bank to control and regulate the supply of money with the public and the flow of credit with a view to achieving economic
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On account of all these benefits, monetary authorities have to take concrete steps to check price oscillations. Price stability is considered as one of the prerequisite condition for economic development and it contributes positively to the attainment of a steady rate of growth in an economy. This is because price stability will build up public morale and instill confidence in the minds of people, boost up business activity, expand various kinds of economic activities and ensure distributive justice in the country. Prof Basu rightly observes, “A monetary policy which can maintain a reasonable degree of price stability and keep employment reasonably full, sets the stage of economic development”.
3. Exchange rate stability:
Maintenance of stable or fixed exchange rate was one of the major objects of monetary policy for a long time under the gold standard. The stability of national output and internal price level was considered secondary and subservient to the former. It was through free and automatic imports and exports of gold that the country was able to remove the disequilibrium in the balance of payments and ensure stability of exchange rates with other countries. The government followed the policy of expanding currency and credit with the inflow of gold and contracting currency and credit with the outflow of
(1) Explain what the Stable-Monetary-Unit Assumption is (10 points) and (2) provide an example of its application. (10 points)
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To be more precise in the way the monetary policy works, it is under three implements that define its functions: open market operations, changes in the discount rate, and changes in the required reserve ratio. These are the functions that provide the Federal Reserves (the Fed) the ability to change the money supply in our economy. It is a matter of actions taken to maintain our country in the best way possible and, of course, stability comes with a price. With things like supporting our troops in other countries, like Iraq and Afghanistan, a cut in tax rates, and increases in overall spending, it adds up to where we have spent more than we have collected in revenue (Fix the
The goals that the Federal Reserve has for its monetary policy is to keep maximum employment along with other reasons. In addition to that another goal the FED has is to stabilize prices and moderate long term interest rates. This is states in the first line of the article. Congress supplied these goals to the Federal Reserve Act.
The Federal Reserve is the single entity in control of the monetary policy of the United State of America. Monetary policy is the process that the Federal Reserve takes in order to control the supply of money and to attempt the control the direction of interest rates. The reason for doing these actions is in attempt to control the country’s inflation and employment rates, which are the biggest indicators and factors of a healthy economy.
Monetary Policy, in the United States, is the process by which the Federal Reserve controls the money supply to promote economic growth and stability. It is based on the relationship between interest rates of the economy and the total supply of money. The Federal Reserve uses a variety of monetary policy tools to control one or both of these.
Monetary policy uses changes in the quantity of money to alter interest rates, which in turn affect the level of overall spending . “The object of monetary policy is to influence the nation’s economic performance, as measured by inflation”, the employment rate and the gross domestic product, an aggregate measure of economic output. Monetary policy is controlled by
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Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) taking up measures to regulate the supply of money and the rates of interest. It involves controlling money in the economy to promote economic
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Usually this goal is "macroeconomic stability" - low unemployment, low inflation, economic growth, and a balance of external payments. Monetary policy is usually administered by a Government appointed "Central Bank", the Bank of Canada and the Federal Reserve Bank
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1. The gold standard and the money supply. Under the gold standard all national governments promised to follow the “rules of the game”. This meant defending a fixed exchange rate. What did this promise imply about a country’s money supply? A country’s money supply was limited to the amount of gold held by its central bank or treasury. For example, if a country had 1,000,000 ounces of gold and its fixed rate of exchange was 100 local currency units per ounce of gold, that country could have 100,000,000 local currency units outstanding. Any change in its holdings of
Monetary policy affects the aggregate demand by altering the supply or cost of money. One of which is the alteration of the rate of interest. By reducing the interest rate, it encourages consumers and businesses to borrow and spend or invest instead of saving their money. As a result, the supply of money increases. When there is more money, it
Monetary policy is the national macroeconomic regulation and control of two basic policies. It’s mainly work by implementing expansionary policies to adjust the relationship between social total supply and total demand. They have emphasized particularly on, and closely linked. And it must handle the relationship accurately and correctly. According to the actual situation and using the monetary policy, coordinate and flexible, to give full play to its due role. The government should ensure sustained, rapid and healthy development of national economy. The country to adjust the social capital supply and demand should as far as possible to avoid administrative interference, and should use economic means to guide, when the monetary policy effect is not obvious, fiscal policy should play a leading role.