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Monetary policy1

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Monetary policy1

  1. 1. http://powerpointpresentationon.blogspot.com
  2. 3. MEANING <ul><li>Monetary policy is an instrument which effect the credit flow in an economy. </li></ul><ul><li>The variation effect the demand & supply of credit in an economy, and the level or nature of economic activities. </li></ul>
  3. 4. Objective <ul><li>Stability in price level </li></ul><ul><li>Economic development </li></ul><ul><li>Arrangement of full employment </li></ul><ul><li>Expansion of credit facility </li></ul><ul><li>Equality & Justice </li></ul><ul><li>Stability in exchange rate </li></ul>
  4. 5. INSTRUMENTS <ul><li>GENERAL (QUANTITATIVE) Methods </li></ul><ul><li>SELECTIVE (QUALITATIVE) Methods </li></ul>
  5. 6. GENERAL (QUANTITATIVE) Methods <ul><li>Meaning:- </li></ul><ul><li>These methods help in credit control in the economy. </li></ul><ul><li>Affect total quantity of the credit. </li></ul>
  6. 7. Types <ul><li>Bank rate policy </li></ul><ul><li>Open market policy </li></ul><ul><li>Cash reserve ratio </li></ul><ul><li>Statuary reserve ratio </li></ul>
  7. 8. Bank Rate policy <ul><li>Traditional approach:- Bank rate means on which central bank discounts and rediscount the eligible bills. </li></ul><ul><li>Today’s approach:- Bank rate means the minimum rate on which central bank provides financial accommodation to commercial bank in the discharge of its function as the lender of the last resort. </li></ul>
  8. 9. Effect of Bank rate <ul><li>Increase in bank rate </li></ul><ul><li>Increase in bank rate charge by the central bank on its advance to commercial bank. </li></ul><ul><li>Commercial bank increase the rate of interest on their loan. </li></ul><ul><li>Demand for the credits and loan decrease. </li></ul><ul><li>Flow of the money decrease in the economy </li></ul><ul><li>Use in inflationary situation </li></ul><ul><li>Decrease in bank rate </li></ul><ul><li>Decrease in bank rate charge by the central bank on its advance to commercial bank. </li></ul><ul><li>Commercial bank decrease the rate of interest on their loan. </li></ul><ul><li>Demand for the credits and loan increase. </li></ul><ul><li>Flow of the money increase in the economy </li></ul><ul><li>Use in depression situation </li></ul>
  9. 10. Open Market operation <ul><li>Its include the sales and purchase by the central bank of …. </li></ul><ul><li>Assets </li></ul><ul><li>Foreign exchange </li></ul><ul><li>Gold </li></ul><ul><li>Government securities </li></ul><ul><li>Company securities </li></ul>
  10. 11. Use of Open Market operation <ul><li>In the inflationary situation </li></ul><ul><li>Central bank decrease the money supply. </li></ul><ul><li>Central bank sale out the securities to commercial bank and control money supply. </li></ul><ul><li>In the depressionary situation </li></ul><ul><li>Central bank increase the money supply. </li></ul><ul><li>Central bank purchase the securities from the commercial bank. </li></ul>
  11. 12. Cash Reserve Ratio <ul><li>Commercial bank has to keep a certain percentage of his deposits with central bank. </li></ul><ul><li>It control the cash flow in economy. </li></ul><ul><li>It keeps changes in monetary policy framed by central bank of a country. </li></ul>
  12. 13. STATUARY LIQUIDITY RATIO <ul><li>Commercial bank is to keep a certain percentage of his deposit as liquid asset. </li></ul><ul><li>It control the cash flow in economy. </li></ul><ul><li>It keeps changes in monetary policy framed by central bank of a country. </li></ul>
  13. 14. Use of C.R.R. & S.L.R <ul><li>In Inflationary situation </li></ul><ul><li>Increased the percentage of cash reserve ratio and Statutory liquidity ratio </li></ul><ul><li>It reduces the supply of money in an economy </li></ul><ul><li>In Depressionary situation </li></ul><ul><li>Decreased the percentage of cash reserve ratio and Statutory liquidity ratio </li></ul><ul><li>It increases the supply of money in an economy </li></ul>
  14. 15. Function of credit regulation the quantitative methods <ul><li>For expansion of credit </li></ul><ul><li>Reduce the bank rate </li></ul><ul><li>Purchase of securities </li></ul><ul><li>Reduce the C.R.R. </li></ul><ul><li>Reduce the S.L.R. </li></ul><ul><li>For contraction of credit </li></ul><ul><li>Increase the bank rate </li></ul><ul><li>sales of securities </li></ul><ul><li>Increase the C.R.R. </li></ul><ul><li>Increase the S.L.R. </li></ul>
  15. 16. Specific or qualitative Credit Control <ul><li>Adopt for expansion and contraction of credit to attain specific objective. </li></ul>
  16. 17. Methods of qualitative credit control <ul><li>Credit rationing </li></ul><ul><li>Change in margin </li></ul><ul><li>Direct action </li></ul>
  17. 19. MEANING <ul><li>Measures related to taxation & public expenditure are normally called fiscal measures and the policy concerning them as known as FISCAL POLICY. </li></ul><ul><li>In short, fiscal policy or budgetary policy consists of steps & measures which the government in order to fulfill the aims of economic policy. </li></ul>
  18. 20. Objective of fiscal policy <ul><li>To achieve and maintain the full employment in the economy. </li></ul><ul><li>Attain Economic growth in long term. </li></ul><ul><li>Achieve economic stability. </li></ul><ul><li>To guide the allocation of existing resources into socially necessary lines of development. </li></ul>
  19. 21. INSTRUMENTS <ul><li>PUBLIC EXPENDITURE </li></ul><ul><li>TAXATION </li></ul><ul><li>PUBLIC DEBT </li></ul>
  20. 22. PUBLIC EXPENDITURE <ul><li>Meaning:- </li></ul><ul><li>Government spending </li></ul><ul><li>Productive </li></ul><ul><li>Non-Productive </li></ul>
  21. 23. Types <ul><li>PUMP PRIMING </li></ul><ul><li>The government spending which will have the effect of setting the economy going on the way towards full utilization of resources. </li></ul><ul><li>Example:- Gov Expenditure, building infrastructure etc. </li></ul><ul><li>COMPENSATORY SPENDING </li></ul><ul><li>The government spending which will have the effect of setting the social objective and payment of interest on debt. </li></ul><ul><li>Example:- schools, hospitals, pensions, relief payments etc. </li></ul>
  22. 24. EFFECT <ul><li>Gov. exp should be reduced in inflation and increased during depressions in case of a deflationary situation in an economy. Therefore it act as a balancing factor between saving & investment </li></ul>
  23. 25. TAXATION <ul><li>Meaning:- </li></ul><ul><li>Source of Revenue </li></ul><ul><li>Helps Gov. to do there exp. </li></ul><ul><li>Generated from public </li></ul>
  24. 26. Types of Tax <ul><li>Direct Tax </li></ul><ul><li>Direct tax are those tax which a person pay to government directly for himself and can not enforce on other. </li></ul><ul><li>For example:- income tax, wealth tax etc. </li></ul><ul><li>Indirect tax </li></ul><ul><li>Indirect tax are those tax which a person can on others. </li></ul><ul><li>For example:- service tax, sales tax. </li></ul>
  25. 27. Effect of Taxation <ul><li>Reduction in taxation </li></ul><ul><li>Increase the disposable income. </li></ul><ul><li>Increase the consumption power. </li></ul><ul><li>Use for offsetting the deflation forces </li></ul><ul><li>Increase in Taxation </li></ul><ul><li>Decrease the disposable income. </li></ul><ul><li>Decrease the consumption power. </li></ul><ul><li>Use for offsetting the inflation forces. </li></ul>
  26. 28. Public Debt <ul><li>When Gov. exp. are more then Gov. revenue Government take Public Debt. </li></ul><ul><li>Deficit financing = Gov. exp. – Gov. revenue. </li></ul><ul><li>Government take the public debt to fulfill the gap between the Gov exp and the revenue. </li></ul>
  27. 29. Types of public debt <ul><li>Borrowing from public </li></ul><ul><li>Borrowing from commercial bank </li></ul><ul><li>Issue of new currency </li></ul>
  28. 30. Effect <ul><li>Public Debt effect the inflation and deflation </li></ul><ul><li>If government take the borrowing from public and banks it will decrease the cash flow in the market and increase the deflation. </li></ul><ul><li>If there is depression in economy government repay the debt the public which increase the cash flow of the money in market. </li></ul>
  29. 31. Some facts and figures <ul><li>Monetary policy is been framed by…………… </li></ul><ul><li>Fiscal policy is been framed by……………… </li></ul><ul><li>Present governor of R.B.I…………………… </li></ul><ul><li>Present Finance minister of India………………. </li></ul><ul><li>Current S.L.R……………………. </li></ul><ul><li>Current C.R.R………………….. </li></ul><ul><li>Monetary policy in India framed under which act………………………. </li></ul>

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