Question

What are the tools of conventional monetary policy? What is an example of a non-conventional monetary policy action?

Answer 1

Answer - The tools of the central bank namely the discount rates , the reserve ratios and the open market operations are called the conventional tools of monetary policy. During the period of inflation or recession , these tools are used to stabalise the economy and control the money supply.

An unconventional tool of monetary policy is the Asset Purchase. The central bank purchases the assets from the private sectors and financial institutions and pays them money. This will inject the money into the economy and thus will be am expansionary tool of monetary policy