Effectiveness of the monetary policy

Effectiveness of the monetary policy - Effectiveness of the...

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Effectiveness of the monetary policy: Keynes and his followers have strongly criticized this policy and pointed out several limitations of it. Monetary policy is both inadequate and ineffective to solve fundamental problems of fluctuations and disequilibrium in employment and income levels. Some of the important criticisms are: i) Monetary policy operates only on the supply side of the economy. It attempts to control the supply of currency and credit. But leaves demand side outside its scope altogether. As a result, such a one-sided approach has no chance of achieving any significant success in solving major issues. ii) Even on the supply side, the monetary policy faces various difficulties. It is expected that whenever the central bank wants to expand or contract credit supply, the bankers should act accordingly. But this need not be the case. Bankers are likely to be affected by the central bank policies only through their reserve funds positions. But many bankers play safe and are cautious
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This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

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Effectiveness of the monetary policy - Effectiveness of the...

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