Presentation on

Monetary Policy
Submitted by : Devya Solanki
Jaydeep Solanki
Jignesh Suthar

Submitted to: Prof. Poonam Mehta

Monetary Policy :
• Monetary policy is the macroeconomic policy laid
down by the central bank . It involves management
of money supply and Interest rate and is the
demand side Economic policy used by the
government of a country to achieve
macroeconomic objectives like. Inflation ,
consumption , growth , and liquidity
How does it work ?
• Monetary policy is a Central bank's actions and
communications that manage the money supply.
• That includes Credit , Cash , Checks , and money
market mutual funds.
• The most important of these forms of money is
Credit .
• It includes loans , bonds , and mortgages.
• Monetary policy increases liquidity to Create
economic.
• It reduces liquidity to Prevent Inflation.
Objectives :
• Central bank have three Monetary policy objectives.
1. The Most import is to Manage inflation.
2. That is to reduce Unemployment .but only after
Controlling inflation.
3. That is to promote moderate long term interest
rates.
• The U.S Federal Reserve ,like money other Central
banks , has specific targets for these objectives.
Types of monetary Policy
Expansionary monetary policy :

• It is to lower unemployment and avoid recession.

• They increase liquidity by giving banks more money
to lead.
• The Bank charge a lower interest rate making loans
cheaper.
• Business borrow more to buy equipment,hire
employees,and expand their operation.
• Individuals borrow more to buy more homes, cars,
and Appliances.
• That increases demand and overall Economic growth.
Contractionary Monetary Policy :

• It is to reduce inflation.
• They the money supply by restricting the amount
of money banks can lend.
• The bank charge a higher interest rate making loans
more expensive.
• Fewer businesses and individuals borrow slowing
growth.
Monetary Policy Vs.Fiscal Policy :
• Ideally, Monetary policy should work hand-in-glove
with the national government's Fiscal policy.
• It rarely work this way. Government leaders get re-
elected for reducing taxes or increasing spending.
• As results, they adopt expansionary fiscal policy to
avoid inflation in this situation.
• The fed is forced to use restrictive monetary policy.
Example :
• For example,during the Great Recession
Republicans in congress became concerned about
the U.S debt. it exceeded the benchmark. debt to
GDP ratio, of 100%.As a result, fiscal policy became
Contractionary Just when it needed to be
expansionary. To compensate, the fed injected
massive amounts of money in to the economy with
quantitative easing.
Tools of monetary policy :

Open market
Open Market :
• They all use open market operations.
• They buy and sell Government bonds and other
securities from members bank.
• This changes the reserve amount the banks have on
hand.
• A higher Reserve means bank can lend less.
• That's Contractionary Policy .
• In the U.S the feds sells Treasurys to members banks.
Financial Market
1. Money market
( short term upto 1 year)
( govt.sec.: T-bill, cash management bill)
( firm: C- paper, P- notes)

1) Capital market
( long term >1 year)
 Primary (gov.sec.: g- sec, soveregin bond)
(firm: ipo,share,bond,debenture)
 secondary
 Thanks for
considering...