Download - Monetary policy & fiscal policy
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MONETARY POLICY & FISCAL POLICY
PRESENTED BYSIMRAN KAUR
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Monetary policy regulates the supply of money
and availability of credit in the economy It deals with both the lending and borrowing
rates of interest of commercial banks It refers to the credit control measures
adopted by central bank of a country RBI is responsible for formulating and
implementing monetary policy of India
MONETARY POLICY
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To achieve price stability To attain exchange rate stability To avoid negative impacts of business cycle To experience full employment position
OBJECTIVES OF MONETARY POLICY
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BANK RATE : rate of interest charged by RBI
against the commercial bank borrowings RESERVE RATIO [CRR (Cash Reserve Ratio)
and SLR (Statutory Liquidity Ratio)] : RBI insist on commercial banks to keep a certain percentage as reserve in their hands for ensuring liquidity and regulating credit
OPEN MARKET OPERATION : RBI selling the government securities to the public
INSTRUMENTS OF MONETARY POLICY
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MARGIN REQUIREMENTS : Margin requirement
for mortgaging against the loans will be increased to credit and it will be reduced to increase the credit flow
CREDIT RATIONING : The loans and advances are provided only for production purpose and for essential activities to cut down the money in circulation
INSTRUMENTS OF MONETARY POLICY
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MORAL SUASION : RBI controls the commercial
banks for creating loans and advances by persuasion through issue of circular
DIRECT ACTION : Sometimes RBI takes direct action against the credit created by the banks in contravention of RBI guideline to overcome the inflationary situation
INSTRUMENTS OF MONETARY POLICY
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Monetary policy operates in a broad front Success and failure depends on the banking
system of the country It has institutional restrictions Unorganized money market doesn’t support
monetary policy Existence of non-monetized sector defies RBI’s
regulation It is not very effective in overcoming
depression
LIMITATIONS OF MONETARY POLICY
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Economic development needs the support of
credit planning Improving efficiency of banking system Decide interest rates Public debt management
MONETARY POLICY & ECONOMIC DEVELOPMENT
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Fiscal policy is defined as the conscious attempt of
the government to achieve certain macro economic goals of policy by altering the volume and pattern of its revenue and expenditure and the balance between them
It is a budgetary policy The major economic goals of fiscal policy are to
maintain a high average level of employment and business activity, to minimize fluctuations in employment activity, prevent inflation and to produce and promote economic growth
FISCAL POLICY
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To maintain economic stability in the country To bring price stability To achieve full employment To provide social justice To promote export and introduce import
substitution To mobilize more public revenue To reallocate available resources To achieve balanced regional growth
OBJECTIVES OF FISCAL POLICY
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CAPITAL EXPENDITURE : spending on
construction of road, dams and others CONSUMPTION EXPENDITURE : Government
expenditure on consumption of goods and services
INTEREST PAYMENT : interest paid by the government against the borrowings or national debt
TRANSFER OF PAYMENTS : Governments’ transfer of money from one sector to other
INSTRUMENTS OF FISCAL POLICY
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