Page 132 - DMGT401Business Environment

Unit 5: Monetary Policy

3. ................................. of the RBI and other banks are deducted before we calculate the stock of Notes
money
4. ............................... of money is a sensitive issue as even a slight imbalance can create havoc
in the form of deflation or hyperinflation in the country.
5. There is a .................................... relationship between the supply of money and inflation.
6. ..................................... acts as the banker to the central government as also to the governments
of the constituent units of India's federal system.
7. The keynote of .................................... can be said to be controlled expansion of bank credit
and money supply, with special attention to seasonal requirement for credit.
8. The bank rate is also known as ......................................
9. The .............................. refers to the cash which banks have to maintain with the RBI as a
certain percentage of their demand and time liabilities.
10. A ................................. liquidity ratio diverts banks from loans and advances to investment
in government and other approved securities.

5.9 Review Questions

1. What is Monetary Policy? Discuss the factors which influence the supply of money in the
country.
2. Discuss how Monetary Policy influences inflation.

3. Discuss the relation between inflation and interest rates.
4. "Monetary Policy and Fiscal Policy are complementary." Discuss the statement.
5. Describe, in brief, the function of Reserve Bank of India.

6. Discuss how the RBI regulates the supply of money in the country.
Answers: Self Assessment

1. Monetary policy 2. M (NM )
3 3
3. Non-monetary liabilities 4. Supply
5. Direct 6. The Reserve Bank of India
7. Monetary policy 8. Discount rate

9. CRR 10. Higher

5.10 Further Readings

Books Bedi Suresh, Business Environment, Excel Books, 2006
Mishra, Puri, Economic Environment of Business, Himalaya Publications House,
2006

Mittal Vivek, Business Environment, Excel Books, 2007

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