Engineering Economics and Management

1. Government Engineering College,
Bhavnagar.
Civil Engineering Department

2. Topic:-
Monetary
Policy
Engineering
Economics And
Management
(2140003)

3. Contents
• Introduction.
• Objectives of Monetary Policy.
• Price stability
• Rapid Economic growth
• Balance of payments equilibrium
• Full Employment
• Equal income Distribution
• Exchange Rate stability
• Tools of Monetary Policy.

4. Introduction
• Monetary policy is the process by which the monetary
authority of a country controls the supply of money in the
market.
• To control the supply of money, interest rates are altered.
• The purpose for change in rates is to promote the
economic growth and stability through controlling the
money supply.
• The official goals usually include relatively stable prices
and low unemployment.

5. Introduction
• Monetary policy is referred to as either being
expansionary or contractionary, where an expansionary
policy increases the total supply of money in the economy
more rapidly than usual or even shrinks it.
• Expansionary policy is traditionally used to try to combat
unemployment in recession by lowering interest rates in
the hope that easy credit will entice business into
expanding.
• Contractionary policy is intended to slow inflation in order
to avoid the distortion and deterioration of assset values.

6. Objectives of Monetary Policy.
• Price stability
• Rapid Economic growth
• Balance of payments equilibrium
• Full Employment
• Equal income Distribution
• Exchange Rate stability

7. Objectives of Monetary Policy.
• Price Stability:-
• Price instability harms the economy.
• By controlling the interest rates the price stability tries to
keep the value of the money stable by reducing the income
and wealth inequalities.
• Rapid Economic growth
• It is the most important objective of monetary policy. The
monetary policy influence the economic growth by controlling
real interest rate and its resultant impact on the investment.
• If RBI adopts liberal credit policy by reducing the interest rates
the investment level in the economy can be encouraged.

8. Objectives of Monetary Policy.
• Balance of payments equilibrium
• Developing countries mostly faces the problem of BOP.
• The BOP has two aspects, ‘BOP Surplus’ and ‘BOP deficit’.
• The BOP surplus reflects and access money supply in domestic
economy while the ‘BOP deficit’ stands for stringency of money.
• Full Employment
• Monetary policy tries to attain the full employment.
• Through effective control full employment can be achieved.

9. Objectives of Monetary Policy.
• Equal income Distribution
• Economists believe that monetary policy helps in achieving
equal income distribution.
• Effective control through monetary policy, equal income
distribution can be achieved.
• Exchange Rate stability
• Exchange rate is the price at which home country’s currency is
exchanged with the currency of other country.
• If there is high volatility in the exchange value foreign country
loses its faith and hence through maintaining money supply
exchanged rates are stabilized.

10. Tools Of Monetary Policy
• Control on Supply of Money:-
• The first tool is to manage the control of money supply.
• This mainly involves buying government bonds or selling them.
• The change in the amount of the money in the economy effects
in turn affects interbank interest rates.
• Control on Supply of Money:-
• The second tool is to manage the control of money demand.
• Demand for money, like demand for most things is sensitive to
price.
• For money, the price is the interest rates charged to borrowers.

11. Bhavik Shah – 130210106049
Digvijay Solanki – 130210106055
Kartik Hingol – 130210106030
Nitin Charel – 130210106011
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