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Presented by : Marketing C, Group :: 3Adrish Ray

Babar ShikohKarthik Krishna M

Prasanth SVidit Agarwal

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Monetary policy is the process by which

the monetary authority of a country controls

the supply of money, often targeting a rateof interest to attain a set of objectives oriented

towards the economic growth of economy and

stable inflation.

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Reserve requirement(CRR).

Discount rate(BANK RATE, REPORATE,REVERSEREPO RATE).

Open market operation.

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ECONOMIC GROWTH(means greater output).

STABLE PRICE(low, steady rate of inflation).

EXCHANGERATES(with other countries).

CURB UNEMPLOYMENT.

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Quantity theory of money :: Change in money supplyand change in income and prices.

MV=PQMV=PQ

M=quantity of moneyV=velocity of moneyP=price levelQ=quantity of output

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2. causing the

interest rate to fall

IS

1. (M> 0 shiftsthe LM curve down(or to the right)

Y

rLM1

r1

Y1 Y2

r2

LM2

3. which increases

investment, causingoutput & income to

rise.

USEFUL IN RECESSION TO BOOST ECONOMY. 7Alliance University, Bangalore, PGP2010-12 Marketing-C. Group-3

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Y

r LM1

IS

LM2

r1

Y1

r2

Y2

Interest rate

increases.

which

decreases

investment,

causing output &income to fall.

USEFUL TO CURB INFLATION.8Alliance University, Bangalore, PGP2010-12 Marketing-C. Group-3

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Suppose government increases G.

Possible RBI responses:

1

. holdM

constant2. hold r constant

3. hold Y constant

In each case, the effects of the (G

are different:

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If govt. raises G,

the IS curve shifts right.

IS1

Y

r

LM1

r1

Y1

IS2

Y2

r2

IfRBI holds Mconstant,

then LM curve doesntshift.

Results:

2 1Y Y Y( !

2 1r r r( !

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If govt. raises G,

the IS curve shifts right.

IS1

Y

r

LM1

r1

Y1

IS2

Y2

r2

To keep r constant, RBI

increases Mto shift LM curve right.

3 1Y Y Y( !

r( !

LM2

Y3

Results:

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IS1

Y

r

LM1

r1

IS2

Y2

r2

To keep Y constant, RBI

reduces Mto shift LM curve left.

Y( !

3 1r r r( !

LM2

Results:

Y1

r3

If govt. raises G,

the IS curve shifts right.

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Year Month Bank rate Repo ReverseRepo

CRR SLR

2007-08 January 6 7.75 6 7.5 24

2008-09 April 6 8.5 6 8.75 24

July 6 9 6 9 24

October 6 8 6 6.5 24

January 6 5.5 4 5 24

2009-10 April 6 4.75 3.25 5 24

July 6 4.75 3.25 5 24

October 6 4.75 3.25 5 25

January 6 4.75 3.25 5.75 25

2010-11 April 6 5.25 3.75 6 25

July 6 5.75 4.5 6 25

October 6 6.25 5.25 6 25

December 6 6.25 5.25 6 24

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N.B. : Reverse repo rate is also known as Benchmark interest rate.17Alliance University, Bangalore, PGP2010-12 Marketing-C. Group-3

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