Describe in only a few sentences the central idea behind monetary policy.

Expert Solution

Answer -
Monetary policy is adopted by monetary authority of the country to control interest rates and money supply of the country. It is also useful in controlling the inflation and maintaining stability in prices of goods and services in the country. There are two basic criteria of monetary policy i.e.expansionsry and contractionary monetary policy.
In expansionary monetary policy there is an increase in money supply and reduction in interest rates for Increase in demand for goods and services.It is adopted for increase or boost the economic activities.
In contractionary policy money supply decreses for controlling inflation in the country and motivated to people for more savings.
Three instruments of monetary policy includes open market oprations,reserve requirement and discount rate.All these three instruments used by monetary authority according to the requirement of different conditions of the economy.

Rahul Sunny answered 2 years ago

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