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What is a main goal of the Federal Reserve in its monetary policy?
Wiki User
∙ 11y ago
Many economists have given various definitions of monetary policy. Some prominent definitions are as follows.
According to Prof. Harry Johnson,
"A policy employing the central banks control of the supply of money as an instrument for achieving the objectives of general economic policy is a monetary policy."
According to A.G. Hart,
"A policy which influences the public stock of money substitute of public demand for such assets of both that is policy which influences public liquidity position is known as a monetary policy."
From both these definitions, it is clear that a monetary policy is related to the availability and cost of money supply in the economy in order to attain certain broad objectives. The Central Bank of a nation keeps control on the supply of money to attain the objectives of its monetary policy.
Objectives of Monetary PolicyThe objectives of a monetary policy in India are similar to the objectives of its five year plans. In a nutshell planning in India aims at growth, stability and social justice. After the Keynesian revolution in economics, many people accepted significance of monetary policy in attaining following objectives.
1. Rapid Economic Growth
2. Price Stability
3. Exchange Rate Stability
4. Balance of Payments (BOP) Equilibrium
5. Full Employment
6. Neutrality of Money
7. Equal Income Distribution
These are the general objectives which every central bank of a nation tries to attain by employing certain tools (Instruments) of a monetary policy. In India, the RBI has always aimed at the controlled expansion of bank credit and money supply, with special attention to the seasonal needs of a credit.
Let us now see objectives of monetary policy in detail :-
1. Rapid Economic Growth : It is the most important objective of a monetary policy. The monetary policy can influence economic growth by controlling real interest rate and its resultant impact on the investment. If the RBI opts for a cheap or easy credit policy by reducing interest rates, the investment level in the economy can be encouraged. This increased investment can speed up economic growth. Faster economic growth is possible if the monetary policy succeeds in maintaining income and price stability.
2. Price Stability : All the economics suffer from inflation and deflation. It can also be called as Price Instability. Both inflation are harmful to the economy. Thus, the monetary policy having an objective of price stability tries to keep the value of money stable. It helps in reducing the income and wealth inequalities. When the economy suffers from recession the monetary policy should be an 'easy money policy' but when there is inflationary situation there should be a 'dear money policy'.
3. Exchange Rate Stability : Exchange rate is the price of a home currency expressed in terms of any foreign currency. If this exchange rate is very volatile leading to frequent ups and downs in the exchange rate, the international community might lose confidence in our economy. The monetary policy aims at maintaining the relative stability in the exchange rate. The RBI by altering the foreign exchange reserves tries to influence the demand for foreign exchange and tries to maintain the exchange rate stability.
4. Balance of Payments (BOP) Equilibrium : Many developing countries like India suffers from the Disequilibrium in the BOP. The Reserve Bank of India through its monetary policy tries to maintain equilibrium in the balance of payments. The BOP has two aspects i.e. the 'BOP Surplus' and the 'BOP Deficit'. The former reflects an excess money supply in the domestic economy, while the later stands for stringency of money. If the monetary policy succeeds in maintaining monetary equilibrium, then the BOP equilibrium can be achieved.
5. Full Employment : The concept of full employment was much discussed after Keynes's publication of the "General Theory" in 1936. It refers to absence of involuntary unemployment. In simple words 'Full Employment' stands for a situation in which everybody who wants jobs get jobs. However it does not mean that there is a Zero unemployment. In that senses the full employment is never full. Monetary policy can be used for achieving full employment. If the monetary policy is expansionary then credit supply can be encouraged. It could help in creating more jobs in different sector of the economy.
6. Neutrality of Money : Economist such as Wicksted, Robertson have always considered money as a passive factor. According to them, money should play only a role of medium of exchange and not more than that. Therefore, the monetary policy should regulate the supply of money. The change in money supply creates monetary disequilibrium. Thus monetary policy has to regulate the supply of money and neutralize the effect of money expansion. However this objective of a monetary policy is always criticized on the ground that if money supply is kept constant then it would be difficult to attain price stability.
7. Equal Income Distribution : Many economists used to justify the role of the fiscal policy is maintaining economic equality. However in resent years economists have given the opinion that the monetary policy can help and play a supplementary role in attainting an economic equality. monetary policy can make special provisions for the neglect supply such as agriculture, small-scale industries, village industries, etc. and provide them with cheaper credit for longer term. This can prove fruitful for these sectors to come up. Thus in recent period, monetary policy can help in reducing economic inequalities among different sections of society.
Articles on Monetary Policy1. Instruments of Monetary Policy.
2. Limitations of Monetary Policy.
3. Recent Reforms in Monetary Policy.
4. Evaluation of Monetary Policy.
Wiki User
∙ 11y ago
Wiki User
∙ 13y ago1.To accelerate & maintain growth rate
2.To generate new employment opportunities
3.To maintain internal and external price stability
Wiki User
∙ 13y agoThe long-term goals of monetary policy are to promote full employment and stable prices and to moderate long-term interest rates.
Wiki User
∙ 14y agoThe objectives of the monitory policy
Wiki User
∙ 11y agoto curb recessions
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What has least likely been the historical goal of the federal reserve's monetary policy?
decreasing the national debt
What is the main goal of both fiscal and monetary policy?
The main goal of both fiscal and monetary policy is to stabilize the economy.
What is a goal of federal economic policy?
The goal of a federal economic policy is to create a healthy economy in the country that benefits every citizen. The goals of federal economic policy include: maintain stable prices, full employment, economic growth.
Which of these is not a goal of monetary policy?
to manage how tax revenue will be spent
Which of these is not a shared goal of both fiscal and monetary policy?
lowering intrest rates (A+(
What has least likely been the historical goal of the federal reserve's monetary policy?
decreasing the national debt
What is the goal of the US Federal Reserve System?
The US Federal Reserve System sets the nation's monetary policy to promote the objectives of maximum employment, stable prices, and moderate long-term interest rates. The statutory goals of maximum employment and stable prices are easier to achieve if the public understands those goals and believes that the Federal Reserve will take effective measure to achieve them.
What is the main goal of both fiscal and monetary policy?
The main goal of both fiscal and monetary policy is to stabilize the economy.
What is a goal of federal economic policy?
The goal of a federal economic policy is to create a healthy economy in the country that benefits every citizen. The goals of federal economic policy include: maintain stable prices, full employment, economic growth.
Which of these is not a goal of monetary policy?
to manage how tax revenue will be spent
Which of these is not a shared goal of both fiscal and monetary policy?
lowering intrest rates (A+(
WHAT WAS the goal of the Federal Government's policy toward Native Americans in 1800?
The Northwest Ordinance of 1787 stated the original policy of the U.S. federal government toward the Native Americans.
What are not a goal of federal economic policy?
maintain stable prices, full employment, economic growth
What was one key goal of the 1913 federal reserve act?
To create a banking system that could regulate the amount of money in circulation.
What is a Federal Reserve?
If you mean federal reserve banks, it is an international organization created at Bretton Woods, New Jersey in 1945 for regulating the international peg system and the LLB (lower level banks). The International Federal Reserve (IFR) answers to the United Nations that holds the bankruptcy note on the international community under the Federal Reserve Note (FRN), the international bank trading peg. All monies that go into the bank trades are converted from country currency, i.e. Euros, Pounds Sterling, Dinar, etc., into FRN's for trading. Not only for orderly processing exists, the fact of maintaining the international bankruptcy remains paramount. No credit monies exist in the world today, not since 1930. Therefore, the IFR's responsibility is to regulate the bankruptcy until solvency is achieved.
What was the reason for the Federal Reserve's Book Entry System?
The Federal Reserve System in the US was faced with high costs and risks associated with safekeeping and transferring bearer Treasury securities. The task had become huge and the Federal Reserve sought a more efficient method to manage these tasks. In 1966 the US Treasury and the Federal Reserve began to convert Treasury securities to "book -entry" or "nonphysical form". The conversion was also driven by the interest of the Reserve Banks and Treasury in lowering their operating costs and risks. Also, by the desire to preserve market liquidity and the goal to prune member bank operating costs. These goals were successful.
In the late 1800s the goal of the federal governments policy toward Native American Indians was to?
The goal of the federal government's policy towards Native American Indians was to rid them of land wanted by the U.S. in order to proceed with territorial expansion. They wanted to relocate the Indians to reservations much smaller than where they were now. They started the Indian Removal Act in order to do so.
