Monetary policy & fiscal policy

Monetary policy & fiscal policy

• 1.
  PRESENTED BY SIMRAN KAUR
• 2.
    Monetary policyregulates the supply of money and availability of credit in the economy  It deals with both the lending and borrowing rates of interest of commercial banks  It refers to the credit control measures adopted by central bank of a country  RBI is responsible for formulating and implementing monetary policy of India MONETARY POLICY
• 3.
    To achieveprice stability  To attain exchange rate stability  To avoid negative impacts of business cycle  To experience full employment position OBJECTIVES OF MONETARY POLICY
• 4.
    BANK RATE: rate of interest charged by RBI against the commercial bank borrowings  RESERVE RATIO [CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio)] : RBI insist on commercial banks to keep a certain percentage as reserve in their hands for ensuring liquidity and regulating credit  OPEN MARKET OPERATION : RBI selling the government securities to the public INSTRUMENTS OF MONETARY POLICY
• 5.
    MARGIN REQUIREMENTS: Margin requirement for mortgaging against the loans will be increased to credit and it will be reduced to increase the credit flow  CREDIT RATIONING : The loans and advances are provided only for production purpose and for essential activities to cut down the money in circulation INSTRUMENTS OF MONETARY POLICY
• 6.
    MORAL SUASION: RBI controls the commercial banks for creating loans and advances by persuasion through issue of circular  DIRECT ACTION : Sometimes RBI takes direct action against the credit created by the banks in contravention of RBI guideline to overcome the inflationary situation INSTRUMENTS OF MONETARY POLICY
• 7.
    Monetary policyoperates in a broad front  Success and failure depends on the banking system of the country  It has institutional restrictions  Unorganized money market doesn’t support monetary policy  Existence of non-monetized sector defies RBI’s regulation  It is not very effective in overcoming depression LIMITATIONS OF MONETARY POLICY
• 8.
    Economic developmentneeds the support of credit planning  Improving efficiency of banking system  Decide interest rates  Public debt management MONETARY POLICY & ECONOMIC DEVELOPMENT
• 9.
    Fiscal policyis defined as the conscious attempt of the government to achieve certain macro economic goals of policy by altering the volume and pattern of its revenue and expenditure and the balance between them  It is a budgetary policy  The major economic goals of fiscal policy are to maintain a high average level of employment and business activity, to minimize fluctuations in employment activity, prevent inflation and to produce and promote economic growth FISCAL POLICY
• 10.
    To maintaineconomic stability in the country  To bring price stability  To achieve full employment  To provide social justice  To promote export and introduce import substitution  To mobilize more public revenue  To reallocate available resources  To achieve balanced regional growth OBJECTIVES OF FISCAL POLICY
• 11.
    CAPITAL EXPENDITURE: spending on construction of road, dams and others  CONSUMPTION EXPENDITURE : Government expenditure on consumption of goods and services  INTEREST PAYMENT : interest paid by the government against the borrowings or national debt  TRANSFER OF PAYMENTS : Governments’ transfer of money from one sector to other INSTRUMENTS OF FISCAL POLICY