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    Under of Monetary Policy 1

    Uploaded by

    Dongwar Maderse
    Under of fiscal policy etc

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    © All Rights Reserved
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    Under of Monetary Policy 1

    Uploaded by

    Dongwar Maderse
    4 views2 pages
    Under of fiscal policy etc

    Original Title

    Under-of-monetary-policy-1

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    © © All Rights Reserved

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    Under of fiscal policy etc

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    4 views2 pages

    Under of Monetary Policy 1

    Uploaded by

    Dongwar Maderse
    Under of fiscal policy etc

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    What is the under of monetary policy ?

    -Monetary policy encompasses a range of tools and strategies employed by a nation's central bank to
    manage the money supply and influence economic activity [1]. These tools are designed to achieve
    specific macroeconomic objectives, such as promoting economic growth, controlling inflation, and
    maintaining stable exchange rates.

    Here are some key elements that fall under the umbrella of monetary policy:

    1. Interest Rate Policies:

    - Discount Rate: The interest rate at which the central bank lends money to commercial banks [1].
    Adjusting this rate influences the cost of borrowing for banks, impacting their lending activities and
    overall credit availability in the economy.

    - Open Market Operations (OMO): The central bank's buying or selling of government securities (bonds)
    in the open market [1]. By injecting or withdrawing money from the financial system, OMO directly
    affects the money supply and interest rates.

    - Reserve Requirements: The proportion of deposits that banks are legally required to hold in reserve,
    rather than lending out [1]. Changes in reserve requirements can influence the amount of money banks
    have available for lending, impacting credit availability.

    2. Expansionary and Contractionary Policies:

    - Expansionary Monetary Policy: Implemented during economic downturns to stimulate growth. This
    involves lowering interest rates, increasing the money supply, and reducing reserve requirements to
    encourage borrowing, spending, and investment.

    - Contractionary Monetary Policy: Used to curb inflation and slow down an overheated economy. This
    involves raising interest rates, decreasing the money supply, and increasing reserve requirements to
    discourage borrowing and spending.

    3. Other Tools and Strategies:

    - Forward Guidance: Central banks may communicate their intentions regarding future policy actions to
    influence market expectations and guide economic behavior.

    - Quantitative Easing (QE): Involves large-scale purchases of government bonds or other assets by the
    central bank to inject liquidity into the financial system, particularly during periods of economic crisis.

    - Credit Easing: Targets specific sectors or markets with credit constraints by providing direct lending or
    other forms of support.
    4. Objectives of Monetary Policy:

    - Price Stability: Maintaining a low and stable rate of inflation, which helps preserve the purchasing
    power of money and fosters a predictable economic environment.

    - Full Employment: Promoting conditions that support high levels of employment and minimize
    unemployment.

    - Economic Growth: Encouraging sustainable and long-term economic expansion.

    - Exchange Rate Stability: Managing the value of a country's currency relative to other currencies to
    promote international trade and investment.

    In summary, monetary policy encompasses a wide range of tools and strategies that central banks utilize
    to influence the money supply, interest rates, and credit availability, ultimately aiming to achieve
    macroeconomic stability and promote economic well-being.

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