ISSUE NO: 17
rate so they will demand more
goods and services in the market
and to tackle this situation, supply
should be increased otherwise
inflation will take place the
economy.
There are two ways in which
government can form policy to
have the control on economic
situation:
1. Tight monetary policy: It is
used when economy is suffering
from high inflation rate because it
has higher amount of money in
circulation. So, government would
adopt various means and ways to
withdraw excess money from
economy by using tools such as
increasing interest rates, selling
securities in open market and to
commercial banks, increasing the
rate of minimum reserve to be kept
SEP-OCT
by commercial banks towards
central bank, increasing the
borrowing rates among banks
themselves etc.
2. Loose monetary policy: It is
used when economy is in recession
because of lack of effective
demand and lower amount of total
money in circulation in economy.
So, an apex bank would adopt
various means and ways to inject
more money in economy by using
tools such as decreasing interest
rates, decreasing the rate of
minimum reserve to be kept by
commercial banks towards central
bank, decreasing the borrowing
rates among banks themselves etc.
Based on this policy has been
framed and it will create positive
impact on the whole economy.
- By Bhumika Trivedi
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