1. Monetary and Fiscal Policy and Its Impact on Business Decision Making 2. Open Economy Macroeconomics-Mundell –Fleming Model and Its Application

5514 Words Jan 6th, 2013 23 Pages
1. Monetary and fiscal policy and its impact on business decision making 2. Open economy macroeconomics-Mundell –Fleming Model and its application


What is monetary policy?
Monetary policy is the management of money supply and interest by central banks to influence prices and employment. Monetary policy works through expansion or contraction of investment consumption expenditure.
Monetary policy is the process by which the government, central bank (RBI in India), or monetary authority of a country controls 1. The supply of money 2. Availability of money 3. Cost of money or the rate of interest, in order to attain a
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During the 1870-1920 periods the industrialized nations set up central banking systems, with one of the last being the Federal Reserve in1913.By this point the role of the central bank as the "lender of last resort" was understood. It was also increasingly understood that interest rates had an effect on the entire economy, in no small part because of the marginal revolution in economics, which focused on how many more, or how many fewer, people would make a decision based on a change in the economic trade-offs. It also became clear that there was a business cycle, and economic theory began understanding the relationship of interest rates to that cycle.(Nevertheless, steering a whole economy by influencing the interest rate has often been described as trying to steer an oil tanker with a canoe paddle.) Research by Cass Business School has also suggested that perhaps it is the central bank policies of expansionary and contractionary Policies that are causing the economic cycle; evidence can be found by looking at the lack of cycles in economies before central banking policies existed.

OBJECTIVES OF MONETARY POLICY The objectives are to maintain price stability and ensure adequate flow of credit to the productive sectors of the economy. Stability for the national currency (after looking at prevailing economic conditions), growth in employment and income are also looked into. The monetary policy affects the real sector
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