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Monetary Policy - Economics, UPSC IAS Exam Preparation Video Lecture | Indian Economy (Prelims) by Shahid Ali
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FAQs on Monetary Policy - Economics, UPSC IAS Exam Preparation Video Lecture - Indian Economy (Prelims) by Shahid Ali
| 1. What is monetary policy? |  |
Ans. Monetary policy refers to the actions taken by a central bank or monetary authority to control and regulate the money supply and interest rates in an economy. It is used as a tool to achieve macroeconomic objectives such as controlling inflation, promoting economic growth, and maintaining price stability.
| 2. How does monetary policy affect the economy? | |
Ans. Monetary policy affects the economy through various channels. When a central bank implements expansionary monetary policy, such as lowering interest rates or increasing money supply, it encourages borrowing and spending, which stimulates economic activity and promotes growth. Conversely, contractionary monetary policy, like raising interest rates or reducing money supply, aims to curb inflation by slowing down economic growth.
| 3. What are the instruments used in monetary policy? | |
Ans. Central banks use several instruments to implement monetary policy. Some common instruments include open market operations (buying or selling government securities), reserve requirements (the percentage of deposits banks must hold as reserves), discount rate (the interest rate charged by the central bank on loans to commercial banks), and interest rate policy (setting key interest rates to influence borrowing costs).
| 4. How does monetary policy impact inflation? | |
Ans. Monetary policy has a significant impact on inflation. When a central bank implements contractionary monetary policy, such as raising interest rates or reducing money supply, it reduces the availability of credit and increases borrowing costs. This leads to lower consumer spending and investment, which helps to curb inflationary pressures. Conversely, expansionary monetary policy stimulates economic activity and can potentially lead to higher inflation if not carefully managed.
| 5. What is the role of the Reserve Bank of India (RBI) in monetary policy? | |
Ans. The Reserve Bank of India (RBI) is the central bank of India and is responsible for formulating and implementing monetary policy in the country. It uses various instruments such as open market operations, reserve requirements, and policy rates to manage money supply, interest rates, and inflation. The RBI's primary objective is to maintain price stability while also promoting economic growth and financial stability.
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Nov 23, 2024 Last updated |
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