Monetary policy consists of actions by a central bank to control the money supply and interest rates. It can be expansionary to boost economic growth by increasing the money supply and lowering interest rates, or contractionary to control inflation by decreasing the money supply and raising interest rates. The objectives of monetary policy are to control inflation and deflation, maintain exchange rate stability, increase employment levels, improve standards of living, and promote sustained economic growth.

1. Monetary Policy

2. Definition
Monetary policy consists of the actions of a central bank, currency board or other
regulatory committee that determine the size and rate of growth of the money
supply. Monetary policy is maintained through actions such as modifying the
interest rate, buying or selling government bonds, and changing the amount of
money banks are required to keep in the vault (bank reserves).

3. Types of monetary policy
Expansionary monetary policy
 Expansionary monetary policy increases the money supply in order to lower
unemployment, boost private-sector borrowing and consumer spending,
and stimulate economic growth.

4. Contractionary Monetary policy
 Contractionary monetary policy decreases the money supply in order to
control inflation . contractionary monetary policy can slow down the
economic growth, increase unemployment and depress borrowing and
spending by consumers and producer.

5. Objectives of Monetary Policy
 1. Control of Inflation and Deflation :-
Inflation and deflation both are not suitable for the economy. If the price
level is reasonable and there is an adjustment between the price and cost,
rate of out put can increase. Monetary policy is used to coordinate the cost
and price. So price stability is achieved through the monetary policy.

6. 2. Exchange Rate Stability
 Monetary policy second objective is to achieve the stable foreign exchange
rate. If the rate of exchange is stable it shows that economic condition of the
country is stable.

7. 3. increase in the Rate of Employment
:-
Monetary policy another objective is to achieve full employment but
without inflation. monetary policy can be designed to meet with the problem of
unemployment and by further creating new opportunities for employment. The
most suitable and favorable monetary policy should be followed to promote full-
employment through increased investment.

8. 4.improvement in Standard of Living
 It is also the major objective of the monetary policy that it should improve
the quality of life and standard of living in the country. When the money
supply increases people get employment opportunities and this would
increase the income level and standard of living of the society.

9. 5. Economic growth
 Monetary policy promotes sustained and continuous economic growth by
maintaining equilibrium between the total demand for money and total
production capacity and further creating favorable conditions for saving and
investment. For bringing equality between demand and supply, flexible
monetary policy is the best course.