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Macroeconomics Monetary Policy
Macroeconomics Monetary Policy
Aaditya Rathod__________01
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AADITYA RATHOD
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MACROECONOMIC POLICY
Fiscal Policy
Related to budget, government expenditure, taxation
Physical Policy
Related to overcoming specific problems of the economy
Monetary Policy Related to money supply, exchange rate control and bank rate control
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FISCAL POLICY
Use of Government Expenditure, and taxation to manage the economy.
Purpose of Fiscal Policy Stabilise economic growth, avoiding the boom and bust economic cycle
Variables affected by Fiscal Policy in the economy Aggregate demand and the level of economic activity The pattern of resource allocation The distribution of income.
PHYSICAL POLICY
Meant to affect only strategic points of the economy
Purpose of Physical Policy Overcome specific problems such as pricing of particular commodity, shortages or surpluses developing in the economy etc.
Variables affected by Physical Policy in the economy Price and distribution of specific commodity Investment and production Foreign Trade
MONETARY POLICY
Regulation of supply of Money and Cost and Availability of Credit in the economy
Purpose of Monetary Policy Maintain price stability, ensure adequate flow of credit to the productive sectors of the economy and overall economic growth Variables affected by Monetary Policy in the economy Interest Rates Liquidity Credit Availability Exchange Rates
GAURAV SINGH
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Target Variables
Policy Variables - Money supply - OMO: Liquidity conditions - policy rates (CRR, repo etc.)
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INSIGHTS.
Monetary theory provides insight into how to craft optimal monetary policy. Referred to as either being
Expansionary
Contractionary
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Earlier the RBI had made a project headline to bring down the inflation to 7% by March, 2011. However, due to the pressure of continues rise in inflation, it failed to reach its target. It has come to notice that since March 2010, the RBI has hiked its interest rate policies by about 12 times.
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SUSHIL SINGH
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OMO
Open Market Operations-these refer to the sale and purchase of Govt. securities by the RBI The main objective of these operations has been to stabilizes the prices of Govt. securities. The control of inflationary pressures has, however been the secondary objectives. It is used several times after 1991 for controlling inflows.
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TERMS
Objectives
To restrict the expansion of bank credit. y To augment the investment of the banks in Government securities. y To ensure solvency of banks. A reduction of SLR rates looks eminent to support the credit growth in India
y
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TERMS
o
Liquidity.
o
Measure of the extent to which a person or firm has (or has the ability to quickly put hands on) cash to meet immediate and short-term obligations.
Reserve money.
o
The total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. This measure of the money supply typically only includes the most liquid currencies.
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TERMS
Narrow money (M1) y One measure of the money supply that includes all coins, currency held by the public, traveler's checks, checking account balances, y NOW accounts, automatic transfer service accounts, and balances in credit unions. also called M1. Broad money (M2) y One measure of the money supply that includes M1, plus savings and small time deposits, overnight repos at commercial banks, and non-institutional money market accounts. y This is a key economic indicator used to forecast inflation, since it is not as narrow as M1 and still relatively easy to track. y All the components of M2 are very liquid, and the noncash components can be converted into cash very easily.
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SOHIL KOTHARI
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Govt. agenda and development plans Inflation and price situation. Credit and liquidity condition. Foreign money inflow (specially USD) World bank.
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The RBI is likely to keep its Monetary policy tight in view of the uncertainties in global financial markets and high prices of crude oil and food items. The US Fed Reserves rate cuts put pressure on RBI to lower rates.
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The immediate pressure would come from the FOREX market with bankers expecting the rupees to firm up against the USD.
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LIMITATIONS-MONETARY POLICY
Cannot simultaneously stimulate economic demand to reduce unemployment and restrain demand to combat inflation Monetary policy is restricted by the impact of other government actions, especially Fiscal policy, i.e. decisions about government expenditures and taxation Problems of an inflexible labour market, inadequate infrastructure and, most important, fiscal policy whose discipline is open to question limits the effectiveness of the Monetary policy
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Global GDP -0.6% Tighter credit Recession Estimated PPP Global Growth 0.5% Demand Slump Job losses World trade contraction by 2.8%
Production Plunge
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Thank You
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