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Monetary
Policy
MONETARY POLICY
• Monetary policy is the process by which the monetary
authority of a country controls the supply of money,
often targeting a rate of interest for the purpose of
promoting economic growth and stability.
• Monetary policy is the process by which the
government, central bank, or monetary authority of a
country controls
(i) The supply of money,
(ii) Availability of money,
(iii) Cost of money or rate of interest
to attain a set of objectives oriented towards the
growth and stability of the economy
Measures of Money Stock
• M1 - Currency with public + Demand Deposits
with banks + Other deposits with RBI.
• M2 - M1 + Post office savings deposits
• M3 - M2 + Time Deposits with Banks (F.D’s)
• M4 – M3 + Total Post Office Deposits
Types of control :
GENERAL
• Bank Rate
• Open Market Operations
• Change in Liquidity Ratio (SLR)
• Change in Minimum Reserve Ratio (CRR)
• Repo (Repurchase) Rate
• Reverse Repo Rate
SELECTIVE
• Change in marginal Requirements
• Rationing of Credit
• Moral Suasion
• Direct Action
Fiscal Policy
Use of “Government Expenditure”, and “taxation” to manage the economy.
Purpose of Fiscal Policy
Accelerate the rate of investment, rapid economic development, Full
Employment, promoting Foreign Trade, Reducing inequalities of Income
Fiscal Policy operates through Budget.
The Budget simply means the estimate of revenue and expenditure