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Monetary Policy: Economics Video Lecture | Famous Books for UPSC Exam (Summary & Tests)
FAQs on Monetary Policy: Economics Video Lecture - Famous Books for UPSC Exam (Summary & Tests)
| 1. What is monetary policy? |  |
Ans. Monetary policy refers to the actions taken by a central bank, such as the Federal Reserve in the United States, to control and influence the money supply and interest rates in an economy. It is a tool used to achieve economic stability by managing inflation, unemployment, and overall economic growth.
| 2. How does monetary policy affect the economy? | |
Ans. Monetary policy affects the economy in various ways. When a central bank implements expansionary monetary policy, such as lowering interest rates or increasing the money supply, it stimulates borrowing and spending, which can lead to increased investment, job creation, and economic growth. Conversely, contractionary monetary policy, which involves raising interest rates or reducing the money supply, aims to control inflation but can also slow down economic activity.
| 3. What are the main instruments of monetary policy? | |
Ans. The main instruments of monetary policy include open market operations, reserve requirements, and the discount rate. Open market operations involve buying or selling government securities to influence the money supply. Reserve requirements refer to the percentage of deposits that banks must hold as reserves, which can be adjusted by the central bank to affect the lending capacity of commercial banks. The discount rate is the interest rate at which commercial banks can borrow funds from the central bank.
| 4. How does monetary policy impact inflation? | |
Ans. Monetary policy plays a crucial role in controlling inflation. When the central bank tightens monetary policy by raising interest rates or reducing the money supply, it aims to slow down spending and borrowing in the economy. This can help curb inflationary pressures by reducing consumer demand and controlling the growth of prices. On the other hand, expansionary monetary policy can stimulate inflation by encouraging spending and investment.
| 5. Can monetary policy address unemployment? | |
Ans. While monetary policy can indirectly influence employment levels, its primary objective is to maintain price stability and control inflation. By managing interest rates and the money supply, monetary policy can create an environment conducive to economic growth, which can lead to job creation and reduced unemployment. However, addressing unemployment requires a combination of monetary policy, fiscal policy, and structural reforms to boost productivity and enhance job opportunities.
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