Objectives of monetary & non monetary activities
Answers
Monetary policy involves the influence on the level and composition of aggregate demand by the manipulation of interest rates and the availability of credit”-D.C. Aston.
Monetary policy implies those measures designed to ensure an efficient operation of the economic system or set of specific objectives through its influence on the supply, cost and availability of money.
The concept of monetary policy has been defined in a different manner according to different economists;
R.P. Kent has defined the monetary policy as “The management of the expansion and contraction of the volume of money in circulation for the explicit purpose of attaining a specific objective such as full employment.”
Dr.D.C. Rowan remarked, “The monetary policy is defined as discretionary action undertaken by the authorities designed to influence:
(a) The supply of money,
(b) Cost of Money or rate of interest and
(c) The availability of money.”
According to Prof. Crowther, “Monetary Policy consists of the steps taken or efforts made to reduce to a minimum the disadvantages that flow from the existence and operation of the monetary system. It is a policy to regulate the flow of monetary resources in the economy to attain certain specific objectives.” D.C. Aston has defined:”Monetary policy involves the influence on the level and composition of aggregate demand by the manipulation of interest rates and the availability of credit.”
According to G.K. Shaw; “By monetary policy we mean any conscious action undertaken by the monetary authorities to change the quantity, availability or cost (rate of interest) of money. A broader definition might also take into account action designated to influence the composition and the age profile of the national debt, as for example, open market operations geared to purchase the short term securities and seal of long term bonds.”
In the words of Mr. C.K. Johri; “It would comprise those decisions of the government and Reserve Bank of India which affect the volume and composition of money supply in the size and distribution of credit (including Co-operative Banks Credit) the level and structure of interest rates and the effect of these variables upon the factors determining output and prices.”
Objectives of Monetary Policy:
The monetary policy in developed economies has to serve the function of stabilization and maintaining proper equilibrium in the economic system. But in case of underdeveloped countries, the monetary policy has to be more dynamic so as to meet the requirements of an expanding economy by creating suitable conditions for economic progress. It is now widely recognized that monetary policy can be a powerful tool of economic transformation.
As the objective of monetary policy varies from country to country and from time to time, a brief description of the same has been as following:
(i) Neutrality of money
(ii) Stability of exchange rates
(iii) Price stability
(iv) Full Employment
(v) Economic Growth
(vi) Equilibrium in the Balance of Payments.