Page 239 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics

Notes Moral Suasion: Combination of persuasion and pressure which a central bank is always in a
position to use on banks in general and erring banks in particular.
Multiplier Effect: The expansion of a country’s money supply that results from banks being able
to lend.
Repo: A contract in which the seller of securities, such as, Treasury Bills, agrees to buy them back
at a specified time and price.
Reserve Ratio: Amount of money and liquid assets that banks must hold in cash or on deposit
with the central bank, usually a specified percentage of their demand deposits and time deposits.

Reverse Repo: A purchase of securities with an agreement to resell them at a higher price at a
specific future date.

13.7 Review Questions

1. “The objectives of monetary policy in conflict with each other”. Substantiate.

2. How does government/central bank use instruments of monetary policy to ensure stability
in the economy?
3. Describe the qualitative and quantitative instruments of monetary used by the central
bank.
4. Explain the concept of monetary targeting/transmission with the help of figures.
5. In context of money, what does the equation PT = MV signifies? Explain in brief.

6. “Developments in monetary policy closely mirror the changes in overall economic policy.”
Discuss
7. State the issues involved with the monetary policy in India in the 1990s.

8. Does opening up of an economy have some implications on the monetary policy of the
economy? Discuss in brief.
9. Explain the role of monetary policy in an open economy.

10. Discuss the concept of monetary lags. Include a short discussion on the effectiveness of the
monetary policy.

Answers: Self Assessment

1. True 2. False

3. True 4. True
5. (c) 6. (b)
7. (a) 8. (d)
9. velocity of circulation 10. raise

11. real income 12. liquidity trap
13. an open 14. True
15. False 16. True

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