Question

explain monitory policy and its effects on business​

Answer 1

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Explain monetory policy.

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Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.

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What are the effects of monetary policy on business?

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The effects of monetary policy on business are manifold. Though in a direct sense it affects only domestic business enterprises, foreign business entity who has an interest and stake in domestic market also gets affected to an extent. For simplicity, I am explaining three major impact on domestic business units.

1. By changing say interest rate (one of many policy instruments available to RBI i.e. Repo, CRR,SLR etc.), Monetary policy can affect the amount of liquidity in the system. Say RBI increases Repo Rate. The borrowing cost of commercial banks will now go up and they will pass the same to their borrowers. Generally an industry needs loan from Banks to expand its business or any kind of investment. Now since loan has become more costlier, it will negatively affect their investment decision.
2. Continuing from above scenario of increased Repo: Apart from this direct effect on business entity, there is also another effect which plays through consumers. The people who are working in different business industries are also consumers of different goods in market. If a business industry shuns its investment decision, it means it is not generating extra employment which could have been there if the business had hired people for its new investment or increase the salary of existing ones for their increased effort. So because of this lost increase in income of the people who are employed or loss of employment opportunities, spending (hence demand for various goods and service) of these people will not increase. In this way it can affect the demand for a wide range of products and affect many business industries.
3. Also stocks can be traded as goods by consumers on exchange. As mentioned in the previous point, monetary policy can affect one’s income and hence demand for various goods, so stock price can also vary based on the demand and thus market capitalization of a business can change.

Explanation:

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Answer 2

Answer:

\huge{\bf{\green{\fcolorbox{yellow}{black}{\underline{\color{yellow}{Question}}}}}}Question

Explain monetory policy.

\huge{\bf{\green{\fcolorbox{yellow}{black}{\underline{\color{yellow}{Answer}}}}}}Answer

Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.

_________________________________________

\huge{\bf{\green{\fcolorbox{yellow}{black}{\underline{\color{yellow}{Question}}}}}}Question

What are the effects of monetary policy on business?

\huge{\bf{\green{\fcolorbox{yellow}{black}{\underline{\color{yellow}{Answer}}}}}}Answer

The effects of monetary policy on business are manifold. Though in a direct sense it affects only domestic business enterprises, foreign business entity who has an interest and stake in domestic market also gets affected to an extent. For simplicity, I am explaining three major impact on domestic business units.

By changing say interest rate (one of many policy instruments available to RBI i.e. Repo, CRR,SLR etc.), Monetary policy can affect the amount of liquidity in the system. Say RBI increases Repo Rate. The borrowing cost of commercial banks will now go up and they will pass the same to their borrowers. Generally an industry needs loan from Banks to expand its business or any kind of investment. Now since loan has become more costlier, it will negatively affect their investment decision.

Continuing from abovescenario of increasedRepo: Apart from this direct effect on business entity, there is also another effect which plays through consumers. The people who are working in different business industries are also consumers of different goods in market. If a business industry shuns its investment decision, it means it is not generating extra employment which could have been there if the business had hired people for its new investment or increase the salary of existing ones for their increased effort. So because of this lost increase in income of the people who are employed or loss of employment opportunities, spending (hence demand for various goods and service) of these people will not increase. In this way it can affect the demand for a wide range of products and affect many business industries.

Also stocks can be traded as goods by consumers on exchange. As mentioned in the previous point, monetary policy can affect one’s income and hence demand for various goods, so stock price can also vary based on the demand and thus market capitalization of a business can change.

Explanation:

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Explanation:

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