What Is Monetary Policy? Explain the General Objectives of Monetary Policy.

1825 Words Oct 15th, 2012 8 Pages
What is Monetary policy? Explain the general objectives of monetary policy.
103 days ago by Galaxy Edu Planet 0
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

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