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Monetary and Credit System

Monetary and Credit System

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Published by: samrulezzz on May 21, 2010
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Chapter 12Monetary and Credit System
Dr. Gopalakrishna B.V.
Faculty in MBA,SDM, Mangalore.
The economy does not always work smoothly, they oftenoccur fluctuations in the level of economic activity.At the
time of recession
– level of national income,output and employment are below their full potentiallevels.While on the other hand – in
times of boom/peak 
higher level of income, employment and output .Thus, in a free market economy there is a lot of economic instability.During the 1930s world depression and post of secondworld war – Keynes become popular with the public of General Theory in 1936.Keynes argued economic instability – depression andinflation can be eliminated with help of macro-economicpolicy such as monetary policy and fiscal policy.
Monetary Policy
Central bank of a country which formulates andimplements the monetary policy in a country.
Monetary policy is concerned with changing the supply of money stock and rate of interest which stabilizing in theeconomy.
At times of recession monetary policy increase themoney supply and lower interest rates – to stimulateaggregate demand in the country – cheap monetarypolicy.
At times of inflation/boom monetary policy reducedmoney supply and increases interest rate – adoptingtight monetary policy.
The country like India, achieving equilibrium of fullemployment – to encourage economic growth such asagriculture, industry and service sectors.

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