This document discusses monetary policy and its tools and types. It explains that monetary policy controls the money supply and interest rates in an economy. There are two types of monetary policy: expansionary and contractionary. Expansionary policy aims to increase spending by lowering interest rates, while contractionary policy aims to decrease spending by raising interest rates. The role of monetary policy is to achieve economic growth and stable inflation. It discusses how monetary policy uses interest rates and money supply to address inflation and unemployment issues.

1. MONETORY POLICY
Pirzadi Nafiah Naz
M. MustafaAliq
Talal Khan
Shahryar

2. MONETARY POLICY
Monetary policy is the control of the
quantity of money available in an
economy and the channels by which
money is supplied. Tools of Monetary
supply are money supply and Interest
rate

3. TYPES OF MONETARY POLICY:
THERE ARETWOTYPES OF MONETARY POLICY
• Expansionary Monetary Policy
• Contractionary Monetary Policy

4. Expansionary Monetary Policy:
• This policy aims at encouraging spending on goods and services.
• Government decreases the interest rates which causes the cost of borrowing from
banks to decrease.
• It also helps in generating employment, as this policy causes an increase in
demand of goods and services.

5. Contractionary Monetary Policy:
• This policy aims at discouraging spending on goods and services or in other words
to slow down the economy
• Government increases the interest rate which causes the cost of borrowing from
banks to increases.
• this policy will lead to an increase in unemployment rate .

6. ROLE OF MONETARY POLICY:
•The role of the monetary policy in any country is
to achieve higher rate of growth with a stable
inflation rate.
•Monetary policies use tools such as money supply
and interest rates to solve the country’s major
problems such as Inflation and Unemployment.

7. INFLATION:
• Inflation is a quantitative economic measure of a rate of change in prices of
selected goods and services over a period of time.
• Inflation could be represented by using aggregate demand (AD) and aggregate
supply (AS) graph.

8. • Now to solve this problem Governments can also employ a contractionary
monetary policy to fight inflation by reducing the money supply within an economy
via decreased bond prices and increased interest rates.
• Monetary policy – Higher interest rates reduce demand in the economy, by
motivating people to borrow less money as cost of borrowing increases and people
save more so that they can reinvest in the banks.

9. MONETARY POLICIES AND UNEMPLOYMENT:
• Unemployment is one of the major topic of macroeconomics and also one of the
macro problems of an economy. Basically the term unemployment refers to a
situation where a person actively searches for employment but is unable to find
work. Unemployment is considered to be a key measure of the health of the
economy. Now there are many other ways to coupe up with this situation but
since we have to keep up with the topic there would only be discussion of how
monetary policy is used to deal with unemployment. What the government does is
that it decreases interest rates decreasing the cost of borrowing and more and
more people are motivated to borrow money so that they can startup their own
businesses. Now this creates employment opportunities lowering the
unemployment rate.

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