On the other hand, if there is a decrease in money supply and rise in interest rates, that policy is regarded as Contractionary Monetary Policy. Before going into concepts understand with an example. The other type of monetary policy is contractionary fiscal policy. GK, General Studies, Optional notes for UPSC, IAS, Banking, Civil Services. 2. Top 50 Most Important Topics For GEOGRAPHY. When the total money supply is increased rapidly than normal, it is called an expansionary policy while a slower increase or even a decrease of the same refers to a contractionary policy. The forecast of inflation for 6-18 months ahead. Using any of these instruments will lead to changes in the interest rate, or the money supply in the economy. Initially, the main decisions related to interest rates were taken by the Governor of RBI alone before the establishment of the committee. firstname.lastname@example.org, Micro-listing of GS Mains Syllabus UPSC-CSE, 35 days strategy for Spectrum Modern History. It occurs when interest rates are zero or during a recession. (d)Following an expansionary monetary policy . any vacancy in, or any defect in the constitution of the MPC; or, any defect in the appointment of a person acting as a Member of the MPC; or. The aim is to revive the COVID-19-hit Indian economy. Now looking at the high interest rate, Neeraj & sons decided to postpone the plan for borrowings to pay off its employees. RBI issues the Bi-Monthly monetary policy statement. Monetary policy can be expansionary and contractionary in nature. Measures by Government to Curb Inflation Monetary Policy â Expansionary monetary policy Fiscal Stimulus â tax rate reduced from 12% to 10% Sectoral support package â It was granted to IT and BPO as the tax rebate As a result, growth picked up but inflation started to increase, in 2010 RBI started contractor monetary policy. Answer: d. Maximum questions appear from this section of economics and tend to â¦ 3. â¦ Aspirants can also check below links for subject-wise analysis of Previous Years Papers To control rupee weakening, A: will help by reducing the Current account deficit. Limitation of Expansionary Monetary Policy: India may well have scope for expansionary fiscal policy in the short run but not as a medium run growth strategy. For instance, liquidity is important for an economy to spur growth. IMF said Indiaâs growth is projected to pick up to 7.5 per cent in FY21, aided by the âcontinued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policyâ. It lowers the value of the currency, thereby decreasing the exchange rate. To maintain liquidity, the RBI is dependent on the monetary policy. UPSC Prelims 2019 Question Paper Analysis. For the preparation of GS-3 of UPSC Mains, candidates can check the following table: Monetary Policy Committee (UPSC Notes):- Download PDF Here, Your email address will not be published. On the other hand, if there is a decrease in money supply and rise in interest rates, that policy is regarded as Contractionary Monetary Policy. Since supplies will be augmented to adjust to demand, prices will come down. Monetary policy refers all those operations, which are used to control the money supply in the economy. It reduced the demand for electronics drastically. UPSC Prelims 2020 Question Paper With Answer Key. Now as company faced shortage of money, its employees could not be paid their salaries for over a month. Major reasons to support the statement are stated below: 1. Banks earn interest on the reserves maintained as SLR. The policy in which the money supply is increased along with minimization of interest rates is known as Expansionary Monetary Policy. Supply and demand of agricultural products, Mobilization of more deposits by commercial banks, The market rate of interest is likely to fall, Central bank is no longer making loans to commercial banks, Central bank is following an easy money policy, Central bank is following a tight money policy, Borrowing by the schedule banks from the RBI, Lending by the commercial banks to industry and trade, Purchase and sale of government securities by the RBI, Purchase of government securities from the public by the Central Bank, Deposit of currency in commercial banks by the public, Borrowing by the government from the Central Bank, Sale of government securities to the public by the Central Bank. In addition to these measures, RBI also uses many qualitative tools to regulate credit flow and cost of credit to the economy and specific sectors within it. Â RBI sells them to suck money from Market, Â RBI purchases Govt. The tools available with RBI to achieve the targets of monetary policy are:-Bank rates They use various tools available under monetary policy to maintain the balance. Fiscal policy can be contrasted with the other main types of economic policy, monetary policy, which attempts to stabilize the economy by controlling interest rates and â¦ UPSC Civil Services Prelims Exam 2019 Answer Key (Paper-1) (Unofficial) 1. Increasing money supply and reducing interest rates indicate an expansionary policy. India is the largest shareholder in AIIB. Now, to deal with this inflationary pressure, bank decided to hike the interest rate on loans at double compared to earlier rates. An expansionary monetary and expansionary fiscal policy should give a huge fillip to growth and animal spirits. 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