The Description of Monetary Policy

The Description of Monetary Policy

The description areas are following

1. Definition of monetary policy;
2. Objectives of monetary policy;
3. The instrument of monetary policy of the Central Bank;
4. Classification of monetary policy;
5. The necessity of monetary policy;
6. Monetary policy vs. credit policy;
7. Difference between monetary policy and credit policy.

Monetary Policy

The monetary policy defines managing the money of a country by controlling the supply of money and also the credit amount that is called monetary policy. Generally, the central bank of every country formulates the goals of monetary policy and applies it in various sectors. In the description of monetary policy, monetary policy is very essential for a stable economy.

Objectives of Monetary policy

The goals and objectives of monetary policy depend on the condition of the economy of this country. Because the situation of the economy of this country is related to the goals or objects of monetary policy. Here given some important goals or objects of monetary policy:-

1. The stability of value:
2. The stability of the exchange rate:
3. Neutral monetary policy:
4. Control business cycle:
5. Increase Employment
6. Improve investment:
7. Economic development:
8. Full Employment:

The instrument of Monetary Policy of the Central Bank

In the description of monetary policy, the main and foremost goals or objects of the instruments of monetary policy of the central bank are full employment and economic stability. This is the main target of the monetary policy of the central bank. The central bank uses some important instruments of monetary policy. Here given below:-

1. Controlling the issuance of money:
2. Bank rate:
3. The ratio of minimum reserve:
4. Open market operation:
5. Controlling the supply of credit:
6. Ethical pressure:
7. Direct supervision:

Classification of Monetary Policy

In the description of monetary policy, there are three types of monetary policy.

The monetary policy of expansionary or availability: Which monetary policy issues or creates the increase or availability of the money supply is called the monetary policy of expansionary or availability. In the description of monetary policy, the monetary policy of expansionary or availability creates the supply of loans easily. The central bank reduces bank rate and reserve ratio and also purchases debenture or operates the open market policy to increase the supply of money. Generally, the central bank executes this policy for reducing the huge number of unemployment problems or depression.

The monetary policy of contraction or rigid: Which monetary policy reduces the supply of money in the market is called the monetary policy of contraction or rigid. The monetary policy of contraction or rigid is the opposite of the monetary policy of expansionary or availability. The central bank increases the bank rate and the reserve ratio and also sells debenture or operates the open market policy to reduce the supply of money. Generally, central bank executes this policy for reducing the extremely large rate of inflation.

Neutral/Indifference Monetary Policy: Neutral/Indifference monetary policy is that policy where there is no economic change in production, national income, and employment is called neutral/indifference monetary policy. Neutral/Indifference monetary policy executes in the stable economic policy. but not in progress economic policy.

The necessity of Monetary Policy

1. The stability of value
2. Lessening of income discrimination
3. Increase saving and investment
4. Optimum production
5. Optimum money supply
6. Remove bad poverty cycle
7. Reduce business cycle
8. Acquisition of full employment
9. Rapid Development

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Difference between monetary policy and credit policy. 

Are monetary policy and credit policy the same?

Monetary policy vs. credit policy

Answer: In a general sense, there is no difference between monetary policy and credit policy. But in practically monetary and credit policies are not the same. In the description of monetary policy, There are differences in definition, area, and activities. The following is given the explanation:-

1. Definition: Monetary policy means principles to reduce or increase money by the central bank. On the other hand, the principles of the central bank are taken to reduce or increase the power of giving a loan to the commercial bank.

2. Activities: Monetary policy is a large activity of the central bank. In the contrary, Credit policy is a narrow activity.

3. Concept: Monetary policy is a full concept of the economy of a country but credit policy is a part of monetary policy.

4. Importance: Monetary policy is very important in the economy or we can’t think economy without monetary policy. Credit policy is essential not more than monetary policy.

Difference between monetary policy and credit policy.

Monetary policy vs. credit policy differences are shown in the table

Monetary Policy	Credit Policy
The monetary policy defines managing the money of a country by controlling the supply of money and also the credit amount that is called monetary policy.	The principles of the central bank are taken to reduce or increase the power of giving a loan to the commercial bank.
Monetary policy is a large activity of the central bank	A credit policy is a narrow activity.
Monetary policy is a full concept of the economy of a country	Credit policy is a part of monetary policy.
Monetary policy is very important in the economy or we can’t think economy without monetary policy.	Credit policy is essential not more than monetary policy.
Monetary policy is used to control the money supply.	Credit policy is not used to the supply of money.

                                                                                                                                                                 

Monetary policy and credit policy are not the same but they are interrelated to each other in the economy of a country.

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