2. MONETARY POLICY
Meaning of Monetary Policy
Monetary Policy is that which realtes to the delibrate and conscious management of
monerary valuables in order to attain certain objectives. It involves the manipulation of
monetary instrument like open market operations. bank rate, reservation and so on for
the attainment of the objevtives of economic policy. Monetary policy influences the
supply, cost and availability of money.
According to G.K. Shaw, "By Monetary Policy, we mean by conssciouss action
undertaken by the monetary authorities to change the quantity availability or cost
(interest rate) of money.
In Kant's analysis, regulation of money supply by the monetary authority constitutes
monetary policy.
Prof. Harry Johnson defined monetary policy as "a policy employing the central bank's
control over money supply as an instrument for achieving the objectives of general
economic policy.
3. Objectives of Monetary Policy
• Full Employment
• Increasing Investment
• Price Stability
• Control on Inflation & deflation
• Increase in Production
• Exchange stability
4. Instruments of Monetary
Policy
The mainly uses of Monetary Policy Instruments
• Open Market Operation (OMO)
• Cash Reserve Ration (CRR)
• Statutory Liquidity Ration (SLR)
• Liquidity Adjustment Facility (LAF)
• Moral Suasion
• Direct Action
5. Limitations and Problems of
Monetary Policy
Monetary Policy has been defined as a policy of
the central the money supply for achieving the
objectives of General Economic Policy. This
implies that the problems of monetary policy is
the determination of the optimal quantity of
money, or in dynamic conditions, the optimal
rate of growth of the money stock. But in actual
practice it is difficult not only to define but also
to determine the optimal money stock.
6. FISCALPOLICY
Meaning of Fiscal Policy
• The budgetary instrument of government policy are
known as fiscal policy. It is the policy relating to
change in government expenditure and tax payment.
• According to Arthur Smithies, Fiscal Policy means a
policy under which the government uses its
expenditure and revenue programmes to produce
desirable effect to avoid undesirable effects on the
national income, production and employment". during
the depression day's Keynes spoke about the over
whelming importance of government policy in macro
economics.
• Monetary Policy was looked upon as a spoiled child
and the affection shifted to fiscal policy.
7. Objectives of Fiscal Policy
• The Fiscal Policy is formulated to fulfill the
following objectives
• Resource mobilization to increase the rate of
investment and capital formation in order to
augment the rate of economic growth.
• Achieve equitable distribution of income
• Increase in employment opportunities
• Maintaining the price stability
8. Fiscal Policy Tools
The tools or instruments of fiscal policy are
• Taxation
• Public Expenditure
• Public Debt
9. Limitation of FiscalPolicy
• Fiscal system may be in conflict with the objectives of price
stability and full employment.
• An expansionary fiscal policy in the matter of allocation of
resources may be self-sefeating ultimately raise it again.
• In an economy as liquid as the us, growth rate maybe
hampered by a sudden increase in taxation . Any growth rate
takes the theoretical assumption of particular consumer
behaviour. This is actually not so in a dynamic economy.
• Fiscal instrument has limited efficiency
• Fiscal policy, for the effectiveness, requires correct forecasting
of economic trends and efficient administrative machinery.
These are not always available in backward countries.
• Political pressure and structural problems also pose
hindrance to the effective utilisation of fiscal machinery
