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Monetary policy & Economic Indicators

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Brief but enough to get idea what is Monetary polic and Economic Indicators

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Monetary policy & Economic Indicators

  1. 1. MONETARY POLICY & ECONOMIC INDICATORS
  2. 2. <ul><li>MONETARY POLICY </li></ul>
  3. 3. Definition of Monetary Policy <ul><li>Control of total credit and money supply in the economy is called monetary policy. </li></ul>
  4. 4. Explanation: <ul><li>Credit has great importance in the modern economic system. For the stability of a country, proper control and regulation of credit is essential. If bank issues too much credit money, it leads to inflation. On other hand tight control over this money may cause depression and unemployment. </li></ul>
  5. 5. Objectives of Monetary Policy <ul><li>Full Employment </li></ul><ul><li>Increase in investment </li></ul><ul><li>Price Stability </li></ul><ul><li>Control on Inflation & Deflation </li></ul><ul><li>Increase in production </li></ul><ul><li>Exchange Stability </li></ul>Following are objectives of monetary policy:
  6. 6. 1. Full Employment <ul><li>One of the objectives of monetary policy is to create more opportunities of employment in all sectors of economy. </li></ul><ul><li>It helps in the maximizing utilization of all the resources. </li></ul>
  7. 7. 2. Increase in Investment With the help of monetary policy central bank tries to increase investment both domestic and foreign, which results in economic stability.
  8. 8. <ul><li>Monetary policy helps in creating price stability in the country by controlling inflation and deflation . </li></ul>3. Price Stability
  9. 9. <ul><li>Monetary policy creates economic stability in the country by controlling inflation and deflation. </li></ul>4. Control on Inflation & Deflation
  10. 10. 5. Increase in Production <ul><li>With help of monetary policy various productive sectors are encouraged to get loan due to which there is an increase in production. </li></ul>
  11. 11. 6. Exchange Stability <ul><li>Monetary policy helps creating exchange stability by improving balance of payment position. </li></ul>
  12. 12. Instruments of Monetary Policy <ul><li>The control of credit is responsibility of the central bank. For this purpose Central bank uses various methods. These are classified into two types : </li></ul><ul><ul><li>Quantitative control </li></ul></ul><ul><ul><li>Qualitative control </li></ul></ul>
  13. 13. Quantitative control <ul><ul><li>These include </li></ul></ul><ul><ul><ul><li>Bank Rate Policy </li></ul></ul></ul><ul><ul><ul><li>Open Market Operations (OMO) </li></ul></ul></ul><ul><ul><ul><li>Variations in Reserves Requirement </li></ul></ul></ul><ul><ul><ul><li>Credit Rationing </li></ul></ul></ul>
  14. 14. Qualitative control <ul><ul><li>These include </li></ul></ul><ul><ul><ul><li>Change in Margin Requirement </li></ul></ul></ul><ul><ul><ul><li>Regulations of consumer s credit </li></ul></ul></ul><ul><ul><ul><li>Moral persuasion </li></ul></ul></ul><ul><ul><ul><li>Publicity </li></ul></ul></ul><ul><ul><ul><li>Direct action </li></ul></ul></ul>
  15. 15. ECONOMIC INDICATORS <ul><ul><li>Statistical data that indicate the direction of an economy. </li></ul></ul><ul><ul><li>They are of three main types: </li></ul></ul><ul><ul><li>(1) Leading indicators </li></ul></ul><ul><ul><li>(2) Coincident indicators </li></ul></ul><ul><ul><li>(3) Lagging indicators </li></ul></ul>
  16. 16. Explanation <ul><ul><li>Economic indicators or business indicators are markers about an economy. Future performance predictions and economic performances can be analyzed through these indicators. </li></ul></ul><ul><ul><li>Examples are unemployment, Inflation (Consumer Price Index), Imports, Exports, GDP, stock market prices and money supply changes. </li></ul></ul>
  17. 17. Coincident indicators <ul><ul><li>Indicators which change about same time and in same direction with economy are called coincident indicators. </li></ul></ul><ul><ul><li>These provide information regarding present economic state. Coincident indicators include retail sales, GDP, industrial production, and personal income etc. </li></ul></ul>
  18. 18. Leading indicators <ul><ul><li>Leading indicators change before economy changes. Stock market returns are such indicators that decline before economy declines and improve before economy begins to grow out of recession. </li></ul></ul>
  19. 19. Lagging indicators <ul><ul><li>Lagging economic indicator doesn’t change direction till a few quarters after changes in economy. One example is unemployment rate which increases after 2 or 3 quarters following an economic improvement. </li></ul></ul>

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