Monetary policy is formulated by central banks to achieve macroeconomic goals like inflation and growth. It involves managing money supply and interest rates through tools like changing required bank reserves, buying or selling government bonds, and setting interest rates. The objectives are price stability and currency trust. There are two types - expansionary policy increases money supply and lowers rates during recessions, while contractionary policy does the opposite to curb inflation.

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: