Basic information about Monetary policy.

1. Presented By:
Sanjeev. K.C.

2.  Monetary policy refers to a micro-economic policy formulated by central bank to achieved
macro-economic objectives to solve macro-economic problem through change in
Aggregate demand by bringing essential change in money supply, interest rate & exchange
rate.
 Central bank or currency board, controls either the cost of very short-term borrowing or
the monetary base, often targeting an inflation rate or interest rate to ensure price stability
and general trust in the currency.

3.  It involves management of money supply and interest rate.
 It is the demand side economic policy used by the government of a country to achieve
macroeconomic objectives like inflation, consumption, growth and liquidity.
Objectives of Macro-economic policies:

4. Types of Monetary policy:
There are two types of monetary policy. They are:
 Expansionary Monetary policy:
Increases Aggregate demand by increasing money supply and decreasing interest rate.
Expansionary monetary policy is adopted when the economy is in a recession, and the
unemployment is the problem.
 Contractionary Monetary policy:
Contractionary Monetary policy is applied when the inflation is a problem and
economy needs to be slow down by curtailing the supply of money.

5. Instruments of Monetary policy:
The instruments of monetary policy used by the Central Bank depend on the level of
development of the economy, especially its financial sector. The commonly used instruments are
shown below: