2. Definition: The part of the economic policy which regulates the level of money in the economy in order to achieve certain objectives. In INDIA,RBI controls the monetary policy. It is announced twice a year, through which RBI,regulate the price stability for the economy.
3. Objectives of monetary policy: Maximum feasible output. High rate of growth. Fuller employment. Price stability. Greater equality in the distribution of income and wealth. Healthy balance in balance of payments(BOP).
11. When central bank offers securities for sale, it intends to contract money supply and credit.
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13. Bank rate policy: Bank rate is the minimum rate at which the central bank provides loans to the commercial banks. It is also called the discount rate. Dear money policy: Bank rate inc interest rate inc borrowing will be less profitable results contraction of credit. Near money policy: Bank rate dec interest rate low borrowing will be more profitable results expansion of credit.
15. Reserve requirements changes: The central bank of a country is empowered to determine within statutory limits, the cash reserve requirements of the commercial banks. Statutory liquid ratio: Bank has to keep portion of total deposits with itself in liquid assets. Cash reserve ratio: The percentage of bank’s deposits which they must keep as cash with RBI.
18. Deficit Financing: It refers to the ways in which the budgetary gap is financed. However, in developing countries, resort is made to the central bank to cover the deficit. The central bank merely release more notes and these are then put into circulation on behalf of the government. Therefore in these countries, deficit financing is tantamount to printing more currency( creation of money).
