Monetary policy & Economic Indicators

Brief but enough to get idea what is Monetary polic and Economic Indicators

1. MONETARY POLICYMONETARY POLICY
&&
ECONOMICECONOMIC
INDICATORSINDICATORS

2. MONETARY POLICYMONETARY POLICY

3. Definition of Monetary PolicyDefinition of Monetary Policy
Control of total credit and money Control of total credit and money
supply in the economy is called supply in the economy is called
monetary policy.monetary policy.

4. Explanation:Explanation:
Credit has great importance in the modern Credit has great importance in the modern
economic system. For the stability of a economic system. For the stability of a
country, proper control and regulation of credit country, proper control and regulation of credit
is essential. If bank issues too much credit is essential. If bank issues too much credit
money, it leads to inflation. On other hand money, it leads to inflation. On other hand
tight control over this money may cause tight control over this money may cause
depression and unemployment.depression and unemployment.

5. Objectives of Monetary PolicyObjectives of Monetary Policy
2.2.Full EmploymentFull Employment
3.3.Increase in investmentIncrease in investment
4.4.Price StabilityPrice Stability
5.5.Control on Inflation & Control on Inflation &
DeflationDeflation
6.6.Increase in productionIncrease in production
7.7.Exchange StabilityExchange Stability
Following are objectives of monetary policy:Following are objectives of monetary policy:

6. 1. 1. Full EmploymentFull Employment
One of the objectives of monetary One of the objectives of monetary
policy is to create more opportunities of policy is to create more opportunities of
employment in all sectors of economy.employment in all sectors of economy.
It helps in the maximizing utilization of It helps in the maximizing utilization of
all the resources. all the resources.

7. 2.2. Increase in InvestmentIncrease in Investment
With the help of monetary policy central With the help of monetary policy central
bank tries to increase investment both bank tries to increase investment both
domestic and foreign, which results in domestic and foreign, which results in
economic stability. economic stability.

8. Monetary policy helps in creating price Monetary policy helps in creating price
stability in the country by controlling stability in the country by controlling
inflation and deflationinflation and deflation..
3. Price Stability3. Price Stability

9. Monetary policy creates economic Monetary policy creates economic
stability in the country by controlling stability in the country by controlling
inflation and deflation.inflation and deflation.
4. Control on Inflation & 4. Control on Inflation &
DeflationDeflation

10. 5. Increase in Production5. Increase in Production
With help of monetary policy various With help of monetary policy various
productive sectors are encouraged to get productive sectors are encouraged to get
loan due to which there is an increase in loan due to which there is an increase in
production.production.

11. 6. Exchange Stability6. Exchange Stability
Monetary policy helps creating exchange Monetary policy helps creating exchange
stability by improving balance of stability by improving balance of
payment position.payment position.

12. Instruments of Monetary PolicyInstruments of Monetary Policy
The control of credit is responsibility of the central The control of credit is responsibility of the central
bank. For this purpose Central bank uses various bank. For this purpose Central bank uses various
methods. These are classified into two typesmethods. These are classified into two types:
1.1.Quantitative controlQuantitative control
2.2.Qualitative controlQualitative control

13. Quantitative controlQuantitative control
These include These include
Bank Rate PolicyBank Rate Policy
Open Market Operations (OMO)Open Market Operations (OMO)
Variations in Reserves RequirementVariations in Reserves Requirement
Credit RationingCredit Rationing

14. Qualitative controlQualitative control
These includeThese include
Change in Margin RequirementChange in Margin Requirement
Regulations of consumer s creditRegulations of consumer s credit
Moral persuasionMoral persuasion
PublicityPublicity
Direct actionDirect action

15. ECONOMIC INDICATORSECONOMIC INDICATORS
Statistical data that indicate the direction of Statistical data that indicate the direction of
an economy.an economy.
They are of three main types:They are of three main types:
(1) Leading indicators(1) Leading indicators
(2) Coincident indicators(2) Coincident indicators
(3) Lagging indicators(3) Lagging indicators

16. Explanation Explanation
Economic indicators or business indicators are Economic indicators or business indicators are
markers about an economy. Future performance markers about an economy. Future performance
predictions and economic performances can be predictions and economic performances can be
analyzed through these indicators.analyzed through these indicators.
Examples are unemployment, Inflation (Consumer Examples are unemployment, Inflation (Consumer
Price Index), Imports, Exports, GDP, stock market Price Index), Imports, Exports, GDP, stock market
prices and money supply changes.prices and money supply changes.

17. Coincident indicatorsCoincident indicators
Indicators which change about same time and in Indicators which change about same time and in
same direction with economy are called coincident same direction with economy are called coincident
indicators.indicators.
These provide information regarding present These provide information regarding present
economic state. Coincident indicators include retail economic state. Coincident indicators include retail
sales, GDP, industrial production, and personal sales, GDP, industrial production, and personal
income etc.income etc.

18. Leading indicatorsLeading indicators
Leading indicators change before economy Leading indicators change before economy
changes. Stock market returns are such indicators changes. Stock market returns are such indicators
that decline before economy declines and improve that decline before economy declines and improve
before economy begins to grow out of recession.before economy begins to grow out of recession.

19. Lagging indicatorsLagging indicators
Lagging economic indicator doesn’t change Lagging economic indicator doesn’t change
direction till a few quarters after changes in direction till a few quarters after changes in
economy. One example is unemployment rate economy. One example is unemployment rate
which increases after 2 or 3 quarters following an which increases after 2 or 3 quarters following an
economic improvement.economic improvement.