QUI

Z-3
ECONOMI
CS-I
I
BY:SONALITRI
PATHI
I
UU19BAL060

Q1.Whati
smonet
arypol
i
cy?
Monetarypoli
cyreferstothepol
icyofthecent ralbankwi t
hr egar
dt otheuseof
monetaryinstr
ument sunderi
tscontr
olt oachievet hespecifi
edgoals.Monet ar
y
pol
icyisthemacr oeconomicpol
icyl
aiddownbyt hecentralbank.Itinvol
ves
managementofmoneysuppl yandinterestrat
eandi sthedemandsi deeconomi c
pol
icyusedbyt hegov er
nmentofacount rytoachi evemacr oeconomi cobject
ives
l
ikeinf
lat
ion,consumpt i
on,gr
owthandl i
quidit
y .

MonetarypolicyoftheReser
veBankofI ndi
aisaimedatmanagi ngthequant i
tyof
moneyinor dertomeettherequi
rementsofdifferentsectorsoftheeconomyandt o
i
ncreasethepaceofeconomi cgrowth.TheRBIi mplement sthemonet arypol
icy
thr
oughopenmar ketoper
ati
ons,bankratepoli
cy, r
eservesystem,creditcont
rol
pol
icy,moralpersuasi
onandthroughmanyot herinstruments.

Q2.Whati
sfi
scalPol
icy
?
Fiscalmeanssomet hi
ngthati srel
atedt opubli
cmoneyort axes.Fiscalpoli
cyisan
est i
mateoft axati
onandgov ernmentspendi ngthatimpactstheeconomy .Itcanbe
ei
t herexpansionar yorcontract i
onary.AlongwithRBI'
spolicythati
nf l
uencesa
nat i
on'
smoneysuppl y
,iti
susedt odirectacountry
'seconomicgoal s.Alongwith
RBI '
spoli
cythati nfluencesanat i
on'
smoneysuppl y,i
tisusedtodirectacount ry
's
economi cgoal s.Itisthemeansbywhi chagovernmentadjustsit
sspendi nglevels
andt axratestomoni t
orandi nfl
uenceanat ion'
seconomy .

Q3.Whati
sRepoRat
e?
Reporat
eist
herateatwhichthecent
ralbankofacountry(Reser
veBankofI ndi
a)
l
endsmoneytocommer ci
albanksintheeventofanyshort
fal
loffunds.Reporat
eis
usedbymonetar
yauthor
it
iestocontr
olinf
lat
ion.

I
ntheev entofinf
lat
ion,
cent
ral
banksi
ncreasereporateasthi
sactsasa
di
sincenti
veforbankstobor
rowfr
om thecentr
albank.Thi
sulti
matel
yreducest
he
moneysupplyintheeconomyandthushelpsi
nar r
esti
nginf
lat
ion.
Q4.Whati
sCRR?
CashReserveRati
o( CRR)isacert
ainminimum amountofdepositt
hatthe
commer ci
albankshavetoholdasreserv
eswi t
hthecent
ralbank.CRRisset
accor
dingtotheguidel
inesofthecent
ralbankofacountr
y.

CRRisat oolusedbyacentral
banktocont
rol
li
qui
dit
yint
hebanki
ngsystem.The
aimistoensurethatbanksdonotr
unoutofcasht
omeetthepaymentdemandof
thei
rdeposit
ors.

Q5.Whati
stheDi
ff
erencebet
weencommer
cialbanksandRBI
Thediffer
encebetweenCommer cialBankandRBIi sthatCommerci
alBankisa
fi
nanciali
nsti
tuti
onthatof
fer
sloansandot herrel
atedservi
cesandacceptsdeposi
ts
from i
ndivi
dualsandfi
rmswhiletheRBIregulat
esthest r
uctur
eandfuncti
onofthe
formerbeing“thesuprememonetaryandbankingauthorit
y”.

Commercial
Banksareeit
herownedbythegov
ernmentorbypr
ivat
epl
ayersl
ike
i
ndi
vi
dualsorcor
porati
onswhil
eRBIisf
ull
yownedbytheGover
nmentofIndi
a.

Commercial
Banksi
nIndi
aaregover
nedbytheBanki
ngRegul
ati
onAct
,(BRAct
),
1949whi
leTheReser
veBankofIndi
awasestabl
i
shedundert
heReser
veBankof
I
ndiaAct
,1934.

RBIhast
heaut
hor
it
ytoi
ssue&pr
intnot
eswher
eascommer
cial
bankshasnosuch
rol
e.

Q6.Whati
sMoneyMul
ti
pli
er?
Themul t
ipl
ieref
fecti
saneconomi
cterm,r
efer
ri
ngtot
heproporti
onalamountof
i
ncrease,ordecr
ease,i
nfi
nali
ncomethatr
esul
tsfr
om ani
nject
ion,orwi
thdr
awal
,of
capi
tal
.

Moneymult
ipli
eri
sater
mi nmonetar
yeconomicsthati
saphenomenonofcreat
ing
moneyint
heeconomyinthefor
m ofcredi
tcr
eati
on,whichi
sbasedonthef
racti
onal
r
eserv
ebankingsyst
em.

Mat
hemat
ical
l
y,moneymul
ti
pli
erf
ormul
acanber
epr
esent
edasf
oll
ows:

Moneymul
ti
pli
er=1/
r

Wher er=Requi
redreser
verati
oorcashreserv
erati
o(Theamountofmoneyt hat
shouldbekeptbycommer ci
albanksint
heirr
eser
veforwit
hdr
awalpurposesbythe
customersi
srefer
redtoasthereserv
erati
o,r
equir
edreser
ver
ati
o,orcashreserve
rat
io.)

I
tmeansthati
fthereser
ver
ati
oishigher
,thenthemoneymult
ipl
i
erwil
lbelowerand
t
hebanksneedtokeepmorereser
ves.Asar esul
t,t
heywi
l
lnotbeabl
etolendmore
moneyt
oindi
vi
dual
sandbusi
nesses.

Simil
arl
y,al
owerr
eser
verat
ior
esul
tsi
nahighermoneymul
ti
pli
erthatal
l
owsa
l
esseramountofmoneyt
obekeptasareser
veandmorel
endingopport
uni
ti
est
o
thepubli
c.