Fundamental of Economics

Monetary Policy: There are mainly two important instruments with which objectives of macroeconomic policy can be achieved. It is worth noting that it is the central bank of a country which formulates and implements the monetary policy in a country. In some countries, the central bank works on behalf of the government and acts according to its directions and broad guidelines. However, in some countries the central bank enjoys an independent status and pursues its independent policy. Monetary policy is concerned with changing the supply of money stock and rate of interest for the purpose of stabilizing the economy at full-employment or potential output level by influencing the level of aggregate demand. More specifically, at times of recession monetary policy involves the adoption of some monetary tools which tend the increase the money supply and lower interest rates so as to stimulate aggregate demand in the economy. On the other hand, at times of inflation, monetary policy seeks to co