Quantitative Control

Quantitative control affects indiscriminately all sectors of the economy. It is a monetary policy tool used by the central bank to control the money supply in the economy. The central bank implements this policy by imposing limits on the amount of credit that can be extended by commercial banks.

Types of Quantitative Control

1. Open Market Operations: The central bank buys or sells government securities in the open market to influence the level of reserves in the banking system. This, in turn, affects the interest rates and the money supply in the economy.

2. Reserve Requirements: The central bank sets a minimum amount of reserves that commercial banks must hold against their deposits. By increasing or decreasing this requirement, the central bank can control the level of reserves in the banking system.

3. Discount Rate: The discount rate is the interest rate at which commercial banks can borrow from the central bank. By increasing or decreasing this rate, the central bank can influence the interest rates and the money supply in the economy.

Impact of Quantitative Control

Quantitative control affects all sectors of the economy as it influences the availability and cost of credit. When the central bank tightens its monetary policy by reducing the money supply, it becomes more difficult and expensive for businesses and consumers to borrow. This can lead to a slowdown in economic activity and higher unemployment. Conversely, when the central bank loosens its monetary policy by increasing the money supply, it becomes easier and cheaper for businesses and consumers to borrow, which can stimulate economic growth.