BUSINESS ECONOMICS ASSIGNMENT - 3Ques. 1) (a) Analyze both conventional and unconventional tools used by central banks. (a) Meaning of Monetary Policy:- Monetary policy refers to the measures that the central bank of the country takes to control the supply of money and credit in the country. with a view to achieving certain specific economic objectives. These objectives are as follows:1. Rapid economic growth: Monetary policy affects economic development by controlling interest rates in the economy and its effects.2. Price stability: Rising prices lead to inflation. Too much inflation is harmful and the central bank must control it using these policies3. Exchange rate stability: This is the rate at which the currency is exchanged against any other foreign currency. It must be maintained for business stability.4. Balance of Payments (BOP): Excess funds are injected into the economy when needed and additional funds are withdrawn from the economy as and when required.5. Full Employment: The central bank attempts to achieve the full employment rate by increasing overall demand in the economy without increasing inflation too much.6. Equal distribution of income: it ensures appropriate distribution of credit at lower rates for all players in the economy. The central bank uses certain tools to control the country's economy. There are two types of tools: conventional and non-conventional tools:A. Conventional tools • Repo rate and reverse repo rate:a. Repo rate: This is the interest rate that the bank must pay when it takes out a loan from the central bank.b. Reverse repo rate: This is the interest rate that the RBI has to pay when it takes credit from a...... middle of paper ......ON: Alesina, A and R. Perotti, (1997) “Fiscal adjustments in OECD countries: composition and macroeconomic effects”. IMF Staff Papers, 92,571-89Aschauer, DA(1989) “Is Public Spending Productive? : Journal of Monetary Economics, 23,177-200 Pigou's, P. (1935). Unemployment theory. Journal of Economics, 286-324 Taylor, JB (1998).Economics. Boston: Houghton MiffinAhiakpor, JCW. (1995) A Paradox of Savings or Keynes' Misrepresentation of Savings in Classical Growth Theory, Southern Economic Journal, 62,16-33Barzun, J. (1958) Darwin, Marx, Wagner: Critique of 'a legacy, Doubleday, New York Skidelsky, R. (1996) Keynes, Oxford University Press, Oxford Waud, RNMaxwell, P. Hocking, A Bonnici, J, Ward, I. (1996) Economics: Third Australian Edition, Addison Longmon , Melbourne Skidelsky, R. (2000) John Maynard Keynes, Fighting for Britain 1937-46, MacMillan, London