{"id":106431,"date":"2021-05-12T14:09:06","date_gmt":"2021-05-12T08:39:06","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=106431"},"modified":"2021-07-01T10:42:56","modified_gmt":"2021-07-01T05:12:56","slug":"monetary-policy-basics-simplified","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/monetary-policy-basics-simplified\/","title":{"rendered":"Monetary Policy\u00a0– Basics Simplified | Prelims Capsules 2021"},"content":{"rendered":"

Monetary Policy<\/b>\u00a0<\/span><\/h2>\n\n

Monetary policy<\/b><\/span><\/p>\n

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This post is a part of our Prelims Capsules initiative, for other posts<\/strong><\/span>\u00a0\u2013\u00a0Click Here<\/a><\/strong><\/p>\n

To read subject-wise current affairs<\/strong><\/span>\u00a0\u2013\u00a0Click Here<\/a><\/strong><\/p>\n

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\"Monetary<\/h3>\n

Introduction<\/span><\/b>\u00a0<\/span><\/h3>\n

Let us take you back to a time when there is no concept of money as you see now. When people want to buy something, they simply exchange things with one another i.e., barter system exists.<\/span>\u00a0<\/span><\/p>\n

For example:<\/span><\/b>\u00a0if one needs to buy onion, then they exchange rice with them. Need is fulfilled. The person who wanted onion gets it by paying rice to another person.\u00a0<\/span>\u00a0<\/span><\/p>\n

This system suffers from two main problems:<\/span>\u00a0<\/span><\/p>\n

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  1. A person will always be required to find someone who is willing to buy what he is selling and willing to sell what he wants to buy.\u00a0<\/span>For example:<\/span><\/b> In the above case, the person with rice must find someone who wants to buy rice and also has onions to sell to him. This is called the <\/span>double coincidence of wants.<\/span><\/b>\u00a0Both the parties involved must be wanting to buy and sell to each other\u00a0<\/span>certain specific things.<\/span>\u00a0<\/span><\/li>\n
  2. No common measure of value<\/span><\/b>: Now, suppose two such persons do meet who want to buy from and sell to each other. In this case, also, a new problem crops up. Regarding the amount of quantity that must be exchanged. For example: How much rice should one give in exchange for a certain number of onions? There is no common measure of value.<\/span>\u00a0<\/span><\/li>\n<\/ol>\n

    There are many other problems too but these are the two major ones.<\/span>
    \n<\/span>Thus, the\u00a0<\/span>concept of money\u00a0<\/span><\/b>was introduced to solve these problems of the Barter system.\u00a0<\/span>
    \n<\/span>Now, we have money in our economy which leads us to the concept of money supply and a need to control it.<\/span>\u00a0<\/span><\/p>\n

    What is the money supply?<\/span><\/b>\u00a0<\/span><\/h3>\n

    In simplest of terms, the money supply is the amount of money circulating in the economy<\/span>\u00a0i.e., money in circulation.<\/span>\u00a0<\/span><\/p>\n

    Why we need to control the money supply?<\/span><\/b>\u00a0<\/span><\/h4>\n

    Money supply indirectly impacts economic growth and the rate of inflation in an economy.<\/span>\u00a0<\/span><\/p>\n

    For example<\/span><\/b>:\u00a0<\/span>\u00a0<\/span><\/p>\n

    Money supply and inflation<\/span><\/b>\u00a0<\/span><\/h5>\n