Question

list and explain the goals and tools of the monetary policy?

Answer 1

The monetary policy comprises of a set of various macroeconomic measures undertaken by central bank to maintain economic stability and promote national economic growth.

There are various goals and tools of monetary policy that are explained as in the word file attached.

can help them condiD LIITTOLICHID LUNI 2) to promote moderate interest rates charged by the banks: Interest rates need to be moderate as low interest rates will result into people borrowing more and spending more. Hence, this may result into excess money supply in the economy. This can gradually result into high inflation and hence a negative impact on economy later on. While higher interest rates may influence people to save more and spend less. Also, people would tend to borrow less and hence they are able to spend less on the productive activities. This also can result into slowing down the economy and hence is not desirable. 3) to promote maximum employment: Employment promotion is one of the most important goals of economy of any nation. Maximum employment means when all the people, who are able to work or have skills to work, are employed. This is important as increase in employment helps in achieving the other main goals of stability in prices and stable interest rates.

Tools: The goals of the monetary policy are achieved by means of various tools: 1) by controlling the monetary reserve of the banks with the central bank: In almost every country, there is one central bank that governs or controls the economic activities of other banks. In order to control the liquidity or monetary supply in the economy, the central bank asks the banks to maintain at a certain interest rate reserve of money with the central bank. These reserves are mainly kept in terms of treasury bonds. Also, there is kept a provision of keeping some reserve of money with banks themselves, this money is restricted to be kept as reserve and not to be utilized for bank's operational purposes like lending.