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What is the difference between quantitative and qualitative instruments of monetary policy?
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What is the difference between quantitative and qualitative instrument...
Quantitative vs Qualitative Instruments of Monetary Policy
Quantitative Instruments
- Quantitative instruments of monetary policy are those that directly affect the supply of money in the economy.
- The most commonly used quantitative instrument is open market operations, where the central bank buys or sells government securities in the open market to influence the money supply.
- Another quantitative instrument is the reserve requirement, which mandates that banks hold a certain percentage of their deposits as reserves with the central bank.
- The central bank can also use the discount rate, which is the interest rate at which it lends to commercial banks, to influence the money supply.
- Quantitative instruments are useful when the central bank wants to quickly and directly impact the money supply.
- However, they may not be effective in situations where banks are not willing to lend or when there is a lack of demand for credit.
Qualitative Instruments
- Qualitative instruments of monetary policy are those that affect the quality of credit, rather than the quantity.
- One example of a qualitative instrument is credit rationing, where the central bank limits the amount of credit that banks can extend to certain sectors of the economy.
- Another qualitative instrument is moral suasion, where the central bank uses persuasion and communication to encourage banks to behave in a certain way.
- Qualitative instruments are useful when the central bank wants to target specific sectors of the economy or encourage certain lending practices.
- However, they may be less effective than quantitative instruments in quickly and directly impacting the overall money supply.
Conclusion
- Quantitative and qualitative instruments of monetary policy each have their own strengths and weaknesses.
- The choice of instrument will depend on the specific economic situation and the central bank's goals.
- Central banks may also use a combination of both quantitative and qualitative instruments to achieve their desired outcomes.
Community Answer
What is the difference between quantitative and qualitative instrument...
"It is one of the function of RBI. The main difference between quantitative and qualitative is that : Quantitative method is used to control the volume of total credit through bank rate policy,C RR ,SLR repo rate etc."
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What is the difference between quantitative and qualitative instruments of monetary policy?
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What is the difference between quantitative and qualitative instruments of monetary policy? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about What is the difference between quantitative and qualitative instruments of monetary policy? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the difference between quantitative and qualitative instruments of monetary policy?.
What is the difference between quantitative and qualitative instruments of monetary policy? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about What is the difference between quantitative and qualitative instruments of monetary policy? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the difference between quantitative and qualitative instruments of monetary policy?.
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