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Monetary Authoritys policy to manage supply of money to achieve predetermined macroeconomic goals primarily Price Stability Policy affecting quantity of money which determines cost and availability of credit.
Quantitative Instruments
Bank Rate/ Discount Rate:The interest rate at which a nation's central bank lends money to domestic banks. Often these loans are very short in duration.
Cash reserve ratio:The portion (expressed as a percent) of depositors' balances banks must have on hand as cash. This is a requirement determined by the country's central bank, which in the U.S. is the Federal Reserve. The reserve ratio affects the money supply in a country.
Qualitative Instruments
Credit Ceiling:Total amount somebody is allowed to borrow the highest amount that a lender will allow somebody to borrow, for example, on a credit card.
Increase in Investment
Low income: High MPC, no saving No Saving : No Investment Monetary Policy: Proper environment for saving, Capital formation
Increasing interest rate (encourage saving) Loan at appropriate interest rate (encourage investment)
Appropriate BOP
Export <Import Export raw material, Import finished goods Monetary Policy: Encourages production of export goods providing subsidies
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