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Monetary Policy

Monetary Policy

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Published by Rizwan Manzoor

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Published by: Rizwan Manzoor on Aug 18, 2011
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05/07/2014

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Monetary Policy

Monetary policy is an important instrument with which objectives of macroeconomic policy can be achieved. Central Bank of any country which formulates and implements the monetary policy . In a developing countries like Pakistan, India monetary policy has also to promote and encourage economic growth both in the industrial and agriculture sectors of the economy.

Monetary Policy Objectives
High Employment. Economic Growth. Price Stability. Stability of Financial Market

Monetary Policy Tools Of Monetary Policy
Open Market Operation. Changing in the bank rate. Changing in the cash reserve ratio. Rationing Credit

Monetary Policy
Expansionary Monetary Policy In time of depression when aggregate demand falls.
Open Market Operation. Operation. Central bank buys securities due to which commercial bank lead to the increase in reserves of the banks or amount of currency with the general public. With the greater reserves the bank can issue more credit to investors for more investment.

Monetary Policy Expansionary Monetary Policy
Changing in the bank rate. rate. The lower the interest rate the bank will be able to issue more credits to businessmen. This will not only make money cheaper but also increase the availability of credit or money supply.

Monetary Policy Expansionary Monetary Policy
Changing the bank reserve ratio. With lower reserve requirements, a large amount of funds is released for providing loans to businessmen and investors. investors.

Monetary Policy Tools Of Monetary Policy
Rationing Credit The upper limit of available amount is fixed i.e 20 billion to 40 billion

Monetary Policy How Expansionary Monetary Policy works in Keynesian View
Rate of interest (r) In the

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