Monetary Policy

The finance section is considered to be difficult because there is a lot of stuff which one has to remember here. Concepts, facts, figures, current news, impacts on economy everything has to be covered while preparing for this section.

Monetary policy is the procedure by which the monetary authority of a nation, normally the central bank or currency board, controls either the expense of short-term borrowing or the cash supply, focusing on inflation or the loan fee to guarantee value strength and general trust in the currency. Further goals of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies.

The primary objective of central banks is to manage inflation. The second is to reduce unemployment, but only after they have controlled inflation.

Types of Monetary Policies are:

Expansionary Monetary Policy - If a country is facing a high unemployment rate during a slowdown or a recession, the monetary authority can opt for an expansionary policy aimed at increasing economic growth and expanding economic activity. As a part of expansionary monetary policy, the monetary authority often lowers the interest rates through various measures that make money saving relatively unfavourable and promotes spending. It leads to an increased money supply in the market, with the hope of boosting investment and consumer spending.

Contractionary Monetary Policy - Contractionary monetary policy is when a central bank uses its monetary policy tools to fight inflation. Since inflation is a sign of an overheated economy, the bank must slow economic growth. This policy can slow economic growth and increase unemployment, but is often required to tame inflation.

Cover all topics under the monetary policy. You have to read the newspaper and be updated about the latest happenings to crack this section. Just learning the meaning of concepts will not help you. The finance section has around 20 questions on current affairs.

Remember that you have to clear the cut offs of each section and there is a negative marking system. The topics of finance section and current affairs will help you in the interview round also.

Set daily targets for yourself and complete these in your own way. Take breaks in between if you cannot study continuously. Do not tax your mind.

Be positive and dedicate 4-5 hours of daily practise. It is not necessary to study continuously. Follow your own pattern which makes you feel comfortable. Prepare a list of topics which you need to cover in a day and complete the entire portion accordingly.

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