Question

2. Discuss the uses of a stimulative monetary policy and a restrictive-monetary policy?

Answer 1

The uses of a stimulative monetary policy:
1. It decreases  the interest rate in the country and encourages companies to invest in new projects and hence impacts share value positively
2. It helps in bringing the country out of recessions by increasing demand in the country.
4. It helps in depreciating the currency in the long run which helps in reducing current account deficit by increasing export and decreasing imports

The uses of a restrictive monetary policy:
1. It increases the interest rate in the country and discourages companies to invest in new projects and hence impacts share value negatively.
2. It decreases inflation in the long run.
3. It reduces demand and this helps in maintaining price levels in the country.
4. It helps in appreciating the domestic currency value of the country in case it gets devalued due to market forces