Tools of monitary policy
- Interest on Reserve
- discount rate
- Reserve requirements
- Open market operations
Intrest on reserve : The reserves banks often hold extra
funds on reserve
Discount rate : For the short term loan of commercial
banks, the reserve bank sets special intrest rate
Reserve requirement : The deposit that must be in the
form of cash by the bank and kept in vault
Open market operations : The buying and selling of
things by Govt
QUANTITATIVE EASING
- It is the arrival of new money to the money supply and
issued by the central bank
- It is an unconventional monetary policy
- central bank purchases government securities from the
market by means to reduce interest , thereby motivating money
supply
MONETIZE THE DEFICT AND ITS IMPORTANCE IN FISCAL
POLICY
- The statement means that the govt prints the money
inorder to pay their deficts
- Defic could happen when the govt possibly spend more
than they actually earns
- with the issuing of money which indeed is more than
what govt erans, there could possibly arise some situation where
the money supply in the economy increases,
- Hence the inflation pressure is prevailed
- This is clearly why its related to fiscal policy which
leads to inflation