1. MONETARY POLICY

2. INTRODUCTION BARTER SYSTEM DIFFUCLITIES Double coincidence of wantsMeasure of value 3. DEFINITION OF MONEY DEF: anything that is generally acceptable as a means of exchange and that at the same timeacts as a measure and as a store of valueCrowther Money is that which money does-Walker 4. FUNCTIONS OF MONEY Medium of exchange Measure of value Store of value Standard of differed payments 5. IMPORTANCE OF MONEY Fundamental discovery Capitalist economy Socialist economy planning 6. MONEY SUPPLY M1= currency with the public +DD (narrow money) M2=M1+post office deposits M3=M1+time deposits with the banks (broad money) M4 =M3+total post office deposits 7. RESERVE MONEY Reserve money: government money, RR is the cash held by the pubic and the banks It is composed of C+OD+CR C=currency with the public in circulation OD=other deposits of public with the RBI CR=cash reserve of banksM=RM 8. FIAT MONEY CURRENCY NOTES IN CIRCULATION ARE NORMALLY REFERRED TO AS FIAT MONEY THE NOTES ISSUED BY THE RBI ARE USUALLY REFERED AS BANK MONEY OR PROMISSORY NOTES 9. MONETARY POLICY BASIC GOALS : full employment ,price stablity,rapid economic growth ,balance of payments equilibrium and economic justice. monetary policy is policy that employs the central bank s control over the supply and cost of money as an instruments for achieving the objectives of economic policy 10. INSTRUMENTS OF MONETARY POLICY QUANTITATIVE CREDIT CONTROL MEASURESSELECTIVE CREDIT CONTROL MEASURES 11. QUANTITATIVE CREDIT CONTROL Bank rate Variation of cash reserve ratios Open market operations 1.the possession by the central bank of adequate volume of securities 2.The presence of well developed bill market 3.Stability of CRR 12. SELECTIVE CRDIT CONTROL Fixing minimum margin of lending Ceiling on the amount of credit for expansion Different rate of interest will be charged to encouragecertain sectors The central bank will persuade the commercial banks to follow certain policies through moral suasion 13. MONETARY TRANSMISSION The transmission mechanism tells that monetary policy affects income throughthe interest rate and investment 14. DDDDDDD 15. ARGUMENTS Interest rate is inversely related with consumptionIncome may change by altering net private wealth Liquidity trap 16. DEAR MONEY When there is inflation in a country ,the central bank tries to control it by dear money.interest rates are high 17. CHEAP MONEY CHEAP MONEY loans are available at low rates of interest rate it is fallowed during? 18. VALUE OF MONEY PURCHASING POWER OF MONEY PRICE LEVELA general rise in the price level indicates a fall in the value of money A general fall in prices indicates? 19. THE QUANTITY THEORY OF MONEY OR THE EQUATION OF EXCHANGE Irving Fisher prices always change in exact proportion to change in the quantity money .if the amount of money doubled ,pricesdouble.if the amount of money is halved,prices fall to half their original level 20. EQUATION OF EXCHANGE MV=PT(P=MV/T) M=amount of money V=velocity of circulation of money P=price level T=volume of trade 21. Now a days, a large proprtion of money consists of ? So the equation of exchange has been modified as PT=MV+MV M= ? V=? 22. INFLATION Inflation is a state in which the value of money i.e price are rising crowther There is inflation even without rise in the price level this isknown as Repressed inflation A situation marked by rising prices and stagnation in demand is known as Stagflation 23. TYPES OF INFLATION Demand pull inflation Creeping or persistent inflation -1945-prices and wages push each other Runway or galloping or hyper inflation Cost push inflation Bottleneck inflation Profit push inflation Inflationary spiral 24. MEASURES TO CHECK INFLATION Incresed taxation Reducing government exp. ? Restriction on imports Rationong Price control Wage freeze 25. DEFLATION Crowther- state in which the value of money is rising i.e prices are falling Bad trade and unemployment Losses for producers and businessmen Fall in investment Wage cut 26. EFFECTS OF CHANGES IN PRICES inflation productionstimulatedeflation DiscourageDistribution Business class Fixed income groups Wage earners and salaried investors Rentiersgain Hit hard Lose their jobs Gain but gilt edged lose loseHit hard not much effect gain lose gain 27. Inflation is unjust and deflation is inexpedientAny questions? 28. THANK YOUHAVE A NICE AND FRUITFULL HOLIDAYS 29. YOURS S.MADAN KUMAR M.A.,M.A.,B.Ed.,M.Phil.,M.B.A