Page 241 - DECO402_Macro Economics

Macroeconomic Theory Hitesh Jhanji, Lovely Professional University

Notes Unit-27: Monetary Policy

Contents
Objectives
Introduction
27.1 Meaning of Monetary Policy
27.2 Objectives and Goals of Monetary Policy
27.3 Instruments of Monetary Policy
27.4 Expansionary Monetary Policy
27.5 Restrictive Monetary Policy
27.6 Role of Monetary Policy in a Developing Economy
27.7 Fiscal Policy
27.8 Summary
27.9 Keywords
27.10 Review Questions
27.11 Further Readings

Objectives

After studying this unit, students will be able to:
y Know the meaning of monetary policy,
y Know the objectives of monetary policy,
y Know the expansionary monetary policy,
y Know the restrictive monetary policy.

Introduction

Monetary policy is related to credit control measures adopted by the central bank. Is of two types:
(1) Quantitative-general and indirect control; and (2) Qualitative. – selective or direct control. Under
first category changes in bank rates, operations of open markets and changeable reserve requirements
are included. Their objective is to regulate complete level of credit in the economy through the
medium of commercial banks. In it changeable limit requirements and regulation of consumer credit
are included.

27.1 Meaning of Monetary Policy

By monetary policy is meant credit control measures adopted by the central bank of a country.
Johnson defines monetary policy like this, “this policy is in the form of a tool to control the supply
of money by the central bank with for achieving the objectives of general economic policies.”G.K Sha
has defined it as “Any conscious activity done by monetary officer for changing quantity, availability
or cost of money”

234 LOVELY PROFESSIONAL UNIVERSITY