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Monetary Policy: Som N. Sigdel MBA (Saga)
Monetary Policy: Som N. Sigdel MBA (Saga)
Monetary Policy: Som N. Sigdel MBA (Saga)
Expansionary
Contractionary
Goals/Objectives
Theoretically.. Monetary Policy aims to achieve
Price Stability
Inflation increases price deflation decreases Inflation: Fixed income group face economic problem. Problem in every sector of economy Deflation: Flexible income earners face problem. May paralyze the economy Remain free from inflation and deflation! Control money supply. Does not mean stable price. Reasonable limit.
Neutrality of Money
Quantity of money increase: Inflation Quantity of money decrease: Deflation Inflation/Deflation: Disequilibrium Control quantity of money: So that no change in
Aggregate production Aggregate buying and selling General price level
Stability
Exchange Rate Financial Market Interest Rate
Quantitative Instruments
Bank Rate/ Discount Rate Open Market Operations(OMOs)
Cash reserve Ratio
Qualitative Instruments
Credit Ceiling Change in Margin Lending Directed Credit Control Moral Suasion
Increase in Investment
Low income: High MPC, no saving No Saving : No Investment Monetary Policy: Proper environment for saving, Capital formation
Increasing interest rate (encourage saving) Loan at appropriate interest rate (encourage investment)
Appropriate BOP
Export <Import Export raw material, Import finished goods Monetary Policy: Encourages production of export goods providing subsidies
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