Question

What is the most appropriate monetary policy for our economy right now.

Answer 1

The most appropriate monetary policy at present id is the expansionary monetary policy to enlarge the quantum of money supply and flow of credit to all sectors of an economy.

The current scenario of low demand and productive activity created by pandemic has created a situation of economic slow down.

There need to be Cut in bank rate, repo rate, legal reserve requirements so that there a greater amount of money available for banks to lend and people and firms and corporates can easily borrow and make the effective demand stronger.

Government should increase spending on various development activities and providing subsidies and allowances and financial aid to the needy so that the money and credit flow increase. The increased velocity of money may increase the purchasing power and in tern they demand and consume more there by boost up the economy.

The government should redeem the bonds issued earlier to the public in order to create liquidity in their hands.

Margin requirements should be reduced to encourage the consumers to buy more of the Assets .