ECONOMICS STABILIZATION AND ITS OBJECTIVE/B.A./M.A./11TH CLASS/12TH CLASS
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A stabilization policy seeks to limit erratic swings in the economy's total output, as measured by the nation's gross domestic product (GDP), as well as controlling surges in inflation or deflation. Stabilization of these factors generally leads to healthy levels of employment.
Meaning of Monetary Policy
Monetary policy is a financial tool any country’s central bank (RBI in India) uses to control the money supply. This policy helps to promote sustainable economic growth through strategically planned goals.
Monetary policy helps manage a country’s economy and ensure financial stability by regulating macroeconomic factors such as inflation and unemployment.
Objectives of Monetary Policy in India
Listed below are the major objectives of the monetary policy in India –
Regulation of Money Supply in the Economy
Monetary policy is designed to regulate the money supply in the economy by credit expansion or credit contraction.
Credit expansion – With credit expansion, which means issuing more loans, banks can expand the money supply.
Credit contraction – With credit contraction, meaning giving fewer loans, banks can limit the money supply.
Reserve Bank of India aims to control the money supply to meet economic growth needs and contracts it to curb inflation.
Attaining Price Stability
A primary objective of the monetary policy in India is to maintain price stability, which means control over inflation. The price level is affected by the money supply. The monetary policy regulates the money supply to maintain price stability.
Promoting Economic Growth
The monetary policy aims to make money and credit available for the country’s economic growth. Those sectors significant for economic growth are provided with adequate credit availability.
Encouraging Savings and Investments
The monetary policy promotes saving and investment by regulating the interest rate and checking inflation. Higher rates of interest promote saving and investment.
Controlling Business Cycles
The monetary policy puts a check on boom and depression, which are the main phases of the business cycle. In the boom period, credit is contracted to reduce the money supply and thus check inflation. In the period of depression, credit is expanded to increase the money supply and thus promote aggregate demand in the economy.
Promoting Exports and Substituting Imports
The monetary policy encourages such industries by providing concessional loans to export-oriented and import-substitution units. It further helps to improve the position of the balance of payments.
Managing Aggregate Demand
Monetary authority tries to keep the aggregate demand in balance with the aggregate supply of goods and services. If aggregate demand is to be increased, credit expands, and the interest rate comes down. Because of low-interest rates, more people take loans to buy goods and services, increasing aggregate demand and vice versa.
Ensuring More Credit for the Priority Sector
Monetary policy aims to provide more funds to priority sectors by lowering interest rates for these sectors. The priority sector includes agriculture, small-scale industry, and weaker sections of society.
Developing Infrastructure
Monetary policy aims at developing infrastructure. It provides concessional funds for developing infrastructure.
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