Monetary Policy &

Fiscal Policy

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 Monetary Policy
 Program of action undertaken by monetary authority
or central bank to regulate and control the demand for
and supply of money and flow of credit in the economy
with a view to achieve macro economic goals
 Objectives
– Economic Growth
– Full employment
– Price stability
– Equlibrium in BoPs
– Exchange Stability

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 Instruments
 General/Quantitative
– Bank Rate Policy(BR)
– Liquidity Adjustment Facility(Repo & Reverse Repo)
– Open Market Operations(OMO)
– Variations in Reserve ratios(VRR)
• Cash Reserve Ratio(CRR)
• Statutory Liquidity Ratio(SLR)
 Selective/Qualitative
– Margin requirements
– Consumer credit Regulation
– Publicity
– Moral Suasion
– Direct Action

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 Limitation
 Time Gap
 Problem of Forecasting
 Emergence of Non-Banking Financial
Institutions(NBFCs)

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 Fiscal Policy
 Use of Taxation policy and policy of public expenditure
by Public authorities to achieve macro economic goals
 Objectives
– Economic Growth
– Full Employment
– Price Stability
– Equlibrium in BoPs
– Equity & Justice
 Instruments
– Policy of Taxation/Public revenue
– Policy of Public Expenditure

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 Fiscal Policy
 If PR=PE, Neutral
 If PR>PE, Contractionary
 If PR<PE, Expansionary
 Limitation
– Time Gap
– Problem of Forecasting
– Lack of Flexibility

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