Business & Finance
Would a short term monetary policy take most action in lower interest rates?
Asked in Inflation
What would fed do to interest rates if it wanted to fight inflation?
Asked in Economics
How does increasing money supply affect expansionary monetary policy?
Asked in Economics
How would the Federal reserve implement a tight monetary policy?
Asked in Government
Which action would be a change in the government's fiscal policy?
Asked in Economics
How monetary policy effects a business organisation?
Asked in Economics
What would be resonable monetary policy if the economy was in a recession?
Asked in Economics, US Constitution
If government drops one million dollars from the sky is it a monetary or fiscal policy?
Asked in College Degrees, Economics
What is monetary policy and its objectives?
Meaning of Monetary Policy The term monetary policy is also known as the 'credit policy' or called 'RBI's money management policy' in India. How much should be the supply of money in the economy? How much should be the ratio of interest? How much should be the viability of money? etc. Such questions are considered in the monetary policy. From the name itself it is understood that it is related to the demand and the supply of money. Definition of Monetary Policy 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 Policy The 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 Policy 1. Instruments of Monetary Policy. 2. Limitations of Monetary Policy. 3. Recent Reforms in Monetary Policy. 4. Evaluation of Monetary Policy.
Asked in Economics
How do you distinguish fiscal policy from monetary policy?
Although both fiscal and monetary policy are used to influence the economy in a desired way, they are distinguishable based on who enacts them. Fiscal policy, or more specifically, discretionary fiscal policy, is the policy of the government, in terms of changing taxation or spending. If the government increases taxes (or decreases), that is a fiscal policy. Monetary policy is enacted by whoever controls the money supply of a nation. In the case of the United States, this is the Federal Reserve (our "central bank"). This acts, ideally, separately from the government. They can do things like increase/decrease the money supply with OMOs, change the reserve ratio, or change the discount rate; these three actions would be classified as monetary policy.
Asked in Banking, Economics, US Government
How might the federal government respond to a recession?
Asked in Economics
Why would the federal reserve enact a tight money policy?
monetary policy is the use of money supply and interest rate to control the supply of money in an economy. Usually, the main use of monetary policy is to control inflation. e.g. when interest rate is high, people don't spend as much (and some may even save more), reducing the pressure on demand/supply, reducing the price level i.e. decreased inflation. It can work on reverse if the interest rate is put up (if inflation is dangerously low - close to point of deflation.) Alternatively, government can sell/buy assets so as to withdraw/inject more money into an economy.
Asked in Jobs & Education, Famous People
What did john maynard keynes think would resolve the great depression?
Asked in Law & Legal Issues
What if your financial advisor handling your settlement for your house was to obtain you home insurance He took out a policy on your home and listed your name Is this legal Should they have gotten you?
There are a few tricks up the government’s sleeves when it comes to trying to regulate the economy. But why would the government want to do such a thing? Since the fading of the laissez faire view that governments should keep their noses out of peoples’ economic activities, governments have been using both fiscal policy and monetary policy to help regulate the economy. They are seeking stable growth, because unchecked growth can lead to high inflation and economic implosion. Generally there are three important goals of using either fiscal or monetary policy. They are to keep inflation at low levels, maintain overall stable growth, and try to keep employment levels as close to full employment as possible. Last time I spoke about fiscal policy and how it uses changes in taxation and government spending to aim for those three goals. Today, the topic is monetary policy. This set of tools works by tweaking interest rates to adjust the supply of money in the economy. The theory goes that when interest rates are lowered it tends to increase economic activity. Businesses can access credit more easily, so they invest in capital projects they’ve been sitting on. The same goes for consumers – when rates are lowered you’re more likely to buy a car, use the credit card, or finally put that addition on the house; all things that help to stimulate the economy. Should the economy begin to grow too quickly it could illicit worries about inflation. When that happens, the Fed can tighten up the money supply by increasing interest rates. This has the effect of slowing things down. Monetary policy is usually used to fine tune the rates of inflation and employment. In more serious economic times it is often necessary to combine the use of monetary policy with fiscal policy in a well orchestrated united front. Monetary policy can also involve some more complex tools including open market operations and quantitative easing, which you may have recently heard about. But these are tools that are rarely used. Usually, monetary policy is relegated to the Federal Reserve’s decisions on where to set interest rates.
Asked in Interest Rates
Explain why the FED cannot set intermediate targets in terms of both monetary aggregates and interest rates?
Monetary aggregate is a goal of money supply. Interest rate is a goal of a constant rate. To hold a specific money supply the interest rate would fluctuate. To hold a specific interest rate the money supply would fluctuate. So they can not work together. Check this out and read 11.2 through 11.4 http://www.pitt.edu/~jduffy/econ280/lec1213.pdf
Asked in Mortgages, Deeds and Ownership
How does a husband in Maryland remove the name of his wife from the deed if he cannot find her. Obviously he cannot execute a quit claim deed because he cannot locate her?
That can only be accomplished by a court order. He would have to bring a court action and convince a judge to transfer her interest. That can only be accomplished by a court order. He would have to bring a court action and convince a judge to transfer her interest. That can only be accomplished by a court order. He would have to bring a court action and convince a judge to transfer her interest. That can only be accomplished by a court order. He would have to bring a court action and convince a judge to transfer her interest.
Asked in Insurance
What is the meaning of monetary loss in insurance?
In the context of property insurance, "monetary loss" refers to the destruction or the reduction in value of the object insured. It can also refer, for example, in the context of collision or comprehensive coverage in an auto policy, to the cost of repair. In the context of health insurance, it can refer to the cost incurred in providing medical care (for which the insured would otherwise be liable-this, incurring a monetary loss). In the context of life insurance, it refers to the loss of the financial interest that a beneficiary has in the continued life of an insured.
Asked in Interest Rates
Why does the FED cannot set intermediate targets in terms of both monetary aggregates and interest rates?
Monetary aggregate is a goal of money supply. Interest rate is a goal of a constant rate. To hold a specific money supply the interest rate would fluctuate. To hold a specific interest rate the money supply would fluctuate. So they can not work together. Check this out and read 11.2 through 11.4 http://www.pitt.edu/~jduffy/econ280/lec1213.pdf Prof. Duffy from the University of Pittsburgh