Answers to Economy Quiz Regarding Banking and Similar Topics
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Question.1) (a) Analyse both the conventional and unconventional tools used by central banks.
Answer. 1) (A) Monetary policy- It is a policy given by the central bank which aims at managing the money supply and the interest rate and represents the demand side economic policy which is used by the government to achieve macroeconomic goals-
1. This policy aims on maintaining the cash supply in the economy.
2. It focuses on maintaining equal supply of credit in all economic sectors.
3. It helps in achieving the full employment level which means that there is no unemployment in the economy at that particular point of time.
4. It helps in controlling inflation in the economy by maintaining the aggregate demand and aggregate supply in the economy.
5. It helps in the continuous growth in the economy.
1. QUANTITATIVE -
• Changing reserves requirements:
SLR (statutory liquidity ratio)-Every bank has to maintain a certain set of reserves with itself and the central bank as well. These reserves are from the aggregate reserve funds that the customers deposits with the bank.
CRR(cash reserve ratio)- RBI keeps a part of people’s saving as a deposit with him for safety purposes so that at the time of emergency there is some amount of money available with him.
The rate of reserves is declined when the Central bank needs to increase the cash supply in the economy and when it needs to decrease the cash supply in the economy then the central bank increases the rate of the reserves. Central bank keeps a check on these rates and change them according to the economic conditions.
• Open Market Operations:
In the open market operations the national bank purchases and sells thefinancial assets like; ...
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