Monetary policy is made by the central bank to manage money supply to achieve specific goals- such as constraining inflation, maintaining an appropriate exchange rate , generating jobs etc.
There are basically two types of monetary policies. They are expansionary and contractionary.
Expansionary: This means increase in the total supply of money in the economy . while contractionary policy means decrease in the total money supply.
Following are the objectives of Monetary policies:
- To give push to the economy.
- To achieve price stability
- Employment generation
- Exchange rate stabilisation
- Balancing saving and investment