for economic progress. It is now widely recognized that monetary policy can be a powerful tool of economic transformation. . .
The specific objectives of monetary policy are The Two Faces of Monetary Policy Inflation . Borrowing is easy . Consumers buy more . Businesses expand .
More people are employed . People spend more Recession . Borrowing is difficult . Consumers buy less .
Businesses Postpone expansion . Unemployment increases . Production is reduced Cheap Money Policy Dear Money Policy . Neutrality of Money .
Stability of Exchange Rates . Price Stability . Full Employment . Economic Growth .
Equilibrium in the Balance of Payments Objectives of monetary policy . Neutrality of Money Economists like Wicksteed, Hayek and Robertson are the chief exponents of neutral money. They hold the view that monetary authority should aim at neutrality of money in the economy. Monetary changes could be the root cause of all economic fluctuations.
According to neutralists, the monetary change causes distortion and disturbances in the proper operation of the economic system of the country. . Exchange Rate Stability Exchange rate stability was the traditional objective of monetary authority. This was the main objective under Gold Standard among different countries.
When there was disequilibrium in the balance of payments of the country, it was automatically corrected by movements. It was popularly known as “Expand Currency and Credit when gold is coming in; contract currency and credit when gold is going out.” This system will correct the disequilibrium in the balance of payments and exchange rate stability will be maintained. It must be noted that if there is instability in the exchange rates, it would result in outflow or inflow of gold resulting in unfavorable balance of payments. Therefore, stable exchange rates are advocated.
. Price Stability Economists like Crustave Cassel and Keynes suggested price stabilization as a main objective of monetary policy. Price stability is considered the most genuine - - Banking