DMPQ: What is a monetary policy? What are its types? List down the objectives of monetary policies.

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Monetary policy is made by the central bank to manage money supply to achieve specific goals- such as constraining inflation, maintaining an appropriate exchange rate , generating jobs etc.

 

There are basically two types of monetary policies. They are expansionary and contractionary.

 

Expansionary: This means increase in the total supply of money in the economy . while contractionary policy means decrease in the total money supply.

 

Following are the objectives of Monetary policies:

  • To give push to the economy.
  • To achieve price stability
  • Employment generation
  • Exchange rate stabilisation
  • Balancing saving and investment

 

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