ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Central banks conduct monetary policy by adjusting the supply of money, usually through buying or selling securities in the open market. Open market operations affect short-term interest rates, which in turn influence longer-term rates and economic activity.

Detailed explanation-2: -The central bank influences interest rates by expanding or contracting the monetary base, which consists of currency in circulation and banks’ reserves on deposit at the central bank. Central banks have three main methods of monetary policy: open market operations, the discount rate and the reserve requirements.

Detailed explanation-3: -Price Stability and Economic Growth The Central Bank’s monetary policy decisions are made to maintain a low and stable inflation rate over time, which is an indication of price stability. Inflation is a general increase in price levels over time.

Detailed explanation-4: -Under the Reserve Bank of India, Act, 1934 (RBI Act, 1934) (as amended in 2016), RBI is entrusted with the responsibility of conducting monetary policy in India with the primary objective of maintaining price stability while keeping in mind the objective of growth.