Economic policy is actually a set of procedures taken by Central Bank in the government to stabilize the economy (strengthening the national money, accelerating monetary growth, decreasing prices, therefore on). It can be part of the macroeconomic policy, carried out by using different methods and tools, depending on objectives.
In produced economies budgetary policy has to serve the function of stabilization and maintaining right equilibrium inside the economic system. But in case of underdeveloped countries, the monetary policy must be more dynamic so as to meet the requirements of an expanding economic climate by creating good circumstances for monetary growth. Monetary policy could be strategic, advanced and technical. Under proper or main goals the next tasks are very important.
- Increase of employment among the population
- Normalization of the price level
- Containment of inflationary processes
- Speed of financial growth
- Embrace production amounts
- Alignment (balancing) of the stability of repayments of the express.
By contrast more advanced goals are realized by changing the interest rates plus the amount of money in circulation. In this way, it is possible to modify the current demand for the goods and reduce (increase) the supply pounds. The bottom line is to influence the amount of price plan, attract purchase, increase job and maximize production. Simultaneously, it is possible to maintain or restore the conjuncture in the funds (commodity) marketplace
Trickery goals happen to be of immediate nature. Their very own task is usually to accelerate the achievement of more important more advanced and proper objectives:
- Monitoring the supply of money
- Control of the interest rate level
- Power over the exchange rate.
Types of Monetary Insurance plan
Every country selects its own kind of monetary coverage. It can vary, depending on external conditions, your the economy, the introduction of production, job and other factors. The following types are distinguished:
1 . Smooth monetary policy (its second name is cheap money policy) is geared towards stimulating different sectors with the economy by simply regulating rates of interest and increasing the amount of money. Concurrently, the Central Bank functions the following operations:
- Makes transactions for the purchase of government securities. Most operations will be conducted in the open market, as well as the proceeds will be transferred to the banks stores and to the populations accounts. Such actions allow increasing the amount of money source and bettering the economic capacity of banks. Consequently, the interbank loan is in great require
- Decreases the rate of bank reservations, which drastically expands the lending opportunities for various sectors of the economy, Reduces the interest rate. As a consequence, industrial banks access more lucrative loans terms. At the same time, the volume of financial loans extended to the population in more favorable terms and the fascination of additional money in the form of build up.
2 . Rigid monetary policy (its second name is expensive cash policy) is usually aimed at imposing various restrictions, restraining the expansion of money in circulation together with the main goal preventing inflationary processes. With a tight monetary coverage, the Central Bank works the following activities:
- Increases the limit of bank bookings. In this way, a reduction in the growth from the money source is accomplished
- Boosts the interest price. For this reason, industrial structures are forced to stop the flow of borrowing in the Central Financial institution and to limit the issuance of loans to the open public. The result is a suppression from the growth of funds supply
- Sells government securities. At the same time, deals are made in the marketplace due to current accounts in the population and reserves of economic credit and financial agencies. The result is the same as in the previous case a decrease in the volume in the money source.
