Monetary Policy, types and objectives

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 Monetary Policy:-

Monetary Policy is the Macroeconomic Policy and it refers to the credit control measures adopted by the Central Bank of a country. It is a demand side economic policy used by the government of a country to achieve macroeconomic objectives like- consumption, inflation, liquidity and growth. Monetary policy is set by a central bank.


Types of Monetary Policy:-

1- Expansionary Monetary Policy

2- Contractionary Monetary Policy

1- Expansionary Monetary Policy:-

It is also called as Easy Monetary Policy and used to overcome depression or a recession economic condition. When there is a deflation condition in an economy, the central bank starts an expansionary monetary policy that eases the credit market condition and leads to an upward in aggregate demand. It decreases the cost and availability of credit in the money market, and improves the economy.

2- Contractionary Monetary Policy:-

It is also called as Dear Monetary Policy and used to overcome an inflationary gap. When there is inflation condition in an economy, the central bank starts a contractionary monetary policy in order to lower aggregate consumption and investment by increasing the cost and availability of the credit in the money market and thereby controls inflationary pressures.


Objectives of Monetary Policy:-

1- Full Employment

2- Economic Growth

3- Price Stability

4- Balance of Payment

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