Question

State the limitation of monetary policy in a developing economy

Answer 1

An important limitation of monetary policy arises from its conflicting objectives. To achieve the objective of economic development the monetary policy is to be expansionary but contrary to it to achieve the objective of price stability a curb on inflation can be realised by contracting the money supply.

Answer 2

Answer:

Some of the major limitations of monetary policy in under-developed countries are as follows:

• (1) Under-developed Money Market: The money market in developing countries is highly under-developed.

• This creates several complicated problems for the central bank when it tries to control the money market of the country.