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Note for Managerial Economics - ME by Sonika Mishra

  • Managerial Economics - ME
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Sonika Mishra
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MONETARY POLICY Monetary policy refers to the use of instruments under the control of the central bank (RBI) to regulate the availability, cost and use of money and credit. According to Johnson, “Monetary policy is defined as policy employing central bank’s control of the supply of money as an instrument for achieving the objectives of general economic policy.”

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OBJECTIVES OF MONETARY POLICY Full Employment Price Stability Economic Growth Balance of Payments

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INSTRUMENTS OF MONETARY POLICY BANK RATE CASH RESERVE RATIO (CRR) STATUTORY LIQUIDITY RATIO (SLR) REPO RATE & RESERVE REPO RATE OPEN MARKET OPERATIONS

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BANK RATE • Bank Rate is also known as discount rate. • It is the rate at which RBI lends to the commercial banks or rediscounts their bills. • If bank rate is increased ,then commercial banks also charge higher rate of interest on loans given by banks to public because now commercial banks get funds from RBI at higher rate of interest. • Higher rate of interest will contract credit in the economy i.e. public will take lesser loans because of higher rate of interest. • The current bank rate is 6.75%

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