This document discusses monetary policy and related concepts. It defines money, describes its functions like medium of exchange and store of value. It explains different measures of money supply and the importance of money in capitalist and socialist economies. The document also discusses instruments of monetary policy like bank rate and open market operations. It covers concepts like inflation, deflation, and the quantity theory of money. Inflation can be of different types like demand-pull and cost-push. Measures to control inflation include increased taxation and import restrictions. Deflation causes issues like unemployment and losses for producers.

1. MONETARY
POLICY

2. INTRODUCTION
 BARTER SYSTEM
 DIFFUCLITIES
Double coincidence of wants
Measure of value

3. DEFINITION OF MONEY
DEF: anything that is generally acceptable as
a means of exchange and that at the same time
acts as a measure and as a store of valueCrowther
Money is that which money does-Walker

4. FUNCTIONS OF MONEY
Medium of exchange
Measure of value
Store of value
Standard of differed payments

5. IMPORTANCE OF MONEY
Fundamental discovery
Capitalist economy
Socialist economy
planning

6. MONEY SUPPLY
 M1= currency with the public +DD (narrow money)
 M2=M1+post office deposits
 M3=M1+time deposits with the banks (broad money)
 M4 =M3+total post office deposits

7. RESERVE MONEY
 Reserve money: government money, RR is the cash held by the
pubic and the banks
 It is composed of
 C+OD+CR
C=currency with the public in circulation
OD=other deposits of public with the RBI
CR=cash reserve of banks
M=RM

8. FIAT MONEY
 CURRENCY NOTES IN CIRCULATION ARE NORMALLY
REFERRED TO AS FIAT MONEY
 THE NOTES ISSUED BY THE RBI ARE USUALLY
REFERED AS BANK MONEY OR PROMISSORY NOTES

9. MONETARY POLICY
 BASIC GOALS : full employment ,price stablity,rapid
economic growth ,balance of payments equilibrium and
economic justice.
 “monetary policy is policy that employs the central bank „s
control over the supply and cost of money as an instruments for
achieving the objectives of economic policy”

10. INSTRUMENTS OF
MONETARY POLICY
QUANTITATIVE CREDIT CONTROL
MEASURES
SELECTIVE CREDIT CONTROL
MEASURES

11. QUANTITATIVE CREDIT
CONTROL

Bank rate
 Variation of cash reserve ratios
 Open market operations
1.the possession by the central bank of adequate volume of securities
2.The presence of well developed bill market
3.Stability of CRR

12. SELECTIVE CRDIT
CONTROL
 Fixing minimum margin of lending
 Ceiling on the amount of credit for expansion
 Different rate of interest will be charged to encourage
certain sectors
 The central bank will persuade the commercial banks to
follow certain policies through moral suasion

13. MONETARY
TRANSMISSION
The transmission mechanism tells that
monetary policy affects income through
the interest rate and investment

14. DDDDDDD

15. ARGUMENTS
Interest rate is inversely related with
consumption
Income may change by altering net private
wealth
Liquidity trap

16. DEAR MONEY
When there is inflation in a
country ,the central bank tries to
control it by dear
money……….interest rates are high

17. CHEAP MONEY
CHEAP MONEY loans are available at low
rates of interest rate it is fallowed during
?

18. VALUE OF MONEY
 PURCHASING POWER OF MONEY
 PRICE LEVEL
A general rise in the price level indicates a fall in the value of
money
A general fall in prices indicates
?

19. THE QUANTITY THEORY
OF MONEY OR THE
EQUATION OF EXCHANGE
 Irving Fisher
 “prices always change in exact proportion to change in the
quantity money .if the amount of money doubled ,prices
double.if the amount of money is halved,prices fall to half their
original level”

20. EQUATION OF EXCHANGE
 MV=PT(P=MV/T)
 M=amount of money
 V=velocity of circulation of money
 P=price level
 T=volume of trade

21.  Now a days, a large proprtion of money consists of ?
So the equation of exchange has been modified as
 PT=MV+M‟V‟
 M‟= ?
 V‟=?

22. INFLATION
 Inflation is a state in which the value of money i.e price are
rising –crowther
 There is inflation even without rise in the price level this is
known as Repressed inflation
 A situation marked by rising prices and stagnation in
demand is known as Stagflation

23. TYPES OF INFLATION
 Demand pull inflation
 Creeping or persistent inflation -1945-prices and wages push each other
 Runway or galloping or hyper inflation
 Cost push inflation
 Bottleneck inflation
 Profit –push inflation
 Inflationary spiral

24. MEASURES TO CHECK
INFLATION
 Incresed taxation
 Reducing government exp. ?
 Restriction on imports
 Rationong
 Price control
 Wage freeze

25. DEFLATION
 Crowther- state in which the value of money is
rising i.e prices are falling
 Bad trade and unemployment
 Losses for producers and businessmen
 Fall in investment
 Wage cut

26. EFFECTS OF CHANGES IN
PRICES
inflation
production
stimulate
deflation
Discourage
Distribution
Business class
Fixed income groups
Wage earners and salaried
investors
Rentiers
gain
Hit hard
Lose their jobs
Gain but gilt edged lose
lose
Hit hard
not much effect
gain
lose
gain

27. Inflation is unjust and deflation is inexpedient
Any questions
?

28. THANK YOU
HAVE A NICE AND FRUITFULL HOLIDAYS

29.  YOURS
S.MADAN KUMAR
M.A.,M.A.,B.Ed.,M.Phil.,M.B.A