Indian Economy
Monetary policy
Policy of interest rates or money supply
Overview
Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability. Further purposes of a monetary policy may be to contribute to economic stability or to maintain predictable exchange rates with other currencies. Today most central banks in developed countries conduct their monetary policy within an inflation targeting framework, whereas the monetary policies of most developing countries' central banks target some kind of a fixed exchange rate system. A third monetary policy strategy, targeting the money supply, was widely followed during the 1980s, but has diminished in popularity since then, though it is still the official strategy in a number of emerging economies.
Source: Wikipedia — Monetary policy (CC BY-SA)
Key concepts
How Monetary policy connects to the ideas, people and events around it.
A central bank, reserve bank, national bank, state bank, or monetary authority is a financial institution that manages the monetary policy of a country or monetary union.
Employment is a relationship between two parties regulating the provision of paid labour services.
Price stability occurs when average consumer prices for goods and services are constant over time, or when they are rising at a low and predictable rate. It is a goal of monetary and fiscal policy aiming to support sustainable rates of economic activity.
In economics, inflation is an increase in the average price of goods and services in terms of money, though it originally referred to the increase of the money supply that can cause such a universal shift.
Economic stability is the absence of excessive fluctuations in the macroeconomy. An economy with fairly constant output growth and low and stable inflation would be considered economically stable.
In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of the euro.
A currency is a standardized form of money, in use or circulation as a medium of exchange, for example banknotes, coins, electronic balances in online bank accounts, and central bank digital currencies (CBDCs).
In macroeconomics, inflation targeting is a monetary policy where a central bank follows an explicit target for the inflation rate for the medium-term and announces this inflation target to the public.
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Questions about Monetary policy
What is Monetary policy?
Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability. Further purposes of a monetary policy may be to contribute to economic stability or to maintain predictable exchange rates with other currencies.
What are the key concepts related to Monetary policy?
The main concepts connected to Monetary policy include Central bank, Employment, Price stability, Inflation, Economic stability, Exchange rate, Currency, Inflation targeting. Each is linked on the map above with its own summary.
Which exams cover Monetary policy?
Monetary policy is part of Indian Economy, which appears in the syllabus of UPSC CSE, UPSC CAPF, NDA, CDS, AFCAT, SSC CGL and 58 more exams.