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Abstract

This paper tries to tackles a fascinating issue called 'Monetary Policy'.Few interesting debates are prevalent on the issue.Monetary policy is one of the main tools that governments can use to influence the economy.Monetary authorities work through the money supply and can use open market operations, their own lending rates and reserve or cash ratios to influence money markets and hence the real economy.Just as with fiscal policy, once the gap in the economy is identified, expansive monetary policy should be used in a recessionary gap and restrictive monetary policy in an inflationary gap.Monetary policy is superior to fiscal policy in many ways, but its greatest weakness is that it does not work nearly as well in recessionary gaps as in inflationary gaps.