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Monetary policy - Central Banking, Indian Financial system Video Lecture | Indian Financial System - B Com

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FAQs on Monetary policy - Central Banking, Indian Financial system Video Lecture - Indian Financial System - B Com

1. What is monetary policy?
Ans. Monetary policy refers to the actions taken by a central bank, such as the Reserve Bank of India (RBI), to control and regulate the money supply and interest rates in an economy. It is used to achieve macroeconomic objectives such as price stability, economic growth, and employment.
2. How does the central bank implement monetary policy?
Ans. The central bank implements monetary policy through various tools and instruments. In the case of India, the RBI uses tools such as open market operations (buying and selling government securities), changing the reserve requirements of commercial banks, and adjusting the repo rate (the rate at which the RBI lends to commercial banks).
3. What is the role of monetary policy in the Indian financial system?
Ans. Monetary policy plays a crucial role in the Indian financial system as it helps in maintaining stability and promoting economic growth. By controlling the money supply and interest rates, the RBI influences borrowing costs, investment decisions, inflation levels, and overall economic activity in the country.
4. How does monetary policy affect inflation in India?
Ans. Monetary policy has a direct impact on inflation in India. When the RBI tightens monetary policy by increasing interest rates or reducing the money supply, it becomes more expensive for businesses and individuals to borrow money. This reduces spending and slows down economic growth, which in turn helps in controlling inflationary pressures.
5. What are the limitations of monetary policy in India?
Ans. Monetary policy in India has certain limitations. First, it may take time for the effects of monetary policy actions to be fully realized in the economy. Second, monetary policy alone cannot address structural issues and supply-side constraints that contribute to inflation or economic instability. Lastly, external factors such as global economic conditions and geopolitical events can influence the effectiveness of monetary policy measures. Hence, a comprehensive approach that combines monetary policy with fiscal policy and structural reforms is necessary for achieving sustainable economic growth.
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