Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsBANKING AND MONETARY POLICY3 Marks
Question
Explain monetary policy Monetary Policy.
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Answer
Monetary, policy:
“The policy undertaken by the apex bank for regulating the supply of money in order to maintain economic stability keeping into consideration the process of economic development and interest of the public is called monetary policy.” In simple words, the policy which regulates the demand for money and supply of money in the economy is called the monetary policy. It is framed by the central bank $($apex bank$)$ i.e. Reserve bank of India.Need of monetary policy:
$RBI$ controls the demand for money and supply of money in the economy. In other words it manages the liquidity in the economy.
If there arises an imbalance in the demand and supply of money then it can lead to inflation or deflation in the economy.
Inflation and deflation brings economic instability and affects the value of currency of the country.
Monetary policy helps to maintain the demand for money and its supply in the economy and hence stabilize the financial market of the country.
Since the monetary policy stabilizes the demand and supply and hence the inflation and deflation in the economy it is also known as ‘Stabilization policy.
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