Monetary Policy Definition, Types and Objectives

Monetary policy is an essential policy in government. With monetary policy, the government can control the economy in a country to achieve economic stability in the availability of money in a country.

In regulating the smooth circulation of money, every country has a central bank tasked with regulating the circulation of money in society. Monetary policy is one of the policies of the central bank to carry out the task of money circulation.

Then what is the meaning and purpose of monetary policy? For those of you who are studying economics about monetary policy, here we will review the definition of monetary policy and its objectives. Check out our review below.

Monetary Policy Definition

policy is a policy taken to support the economy of a government. This policy is decided directly by the government related to determining the amount of money circulation in the community.

With the determination of this monetary policy decision, it is hoped that the country's economic stability will be maintained with the availability of money circulating in the community. With financial stability in the community, it can support economic activity and guard against inflation, bank interest rates and other economic activities.

The person in charge and implementer of monetary policy in Indonesia is carried out by Bank Indonesia under legislation no. 23 of 1999 as the central bank.

Monetary Policy Objectives

In monetary policy, a goal is to maintain economic stability in a country. The following are some of the objectives of monetary policy.

1 . Controlling Inflation

The first objective of monetary policy is to control inflation. With regulations set by the central bank, inflation can be suppressed and maintain the availability of money in banks. Through this policy, various economic activities in the community will remain stable.

2. Maintaining Economic Stability

The second objective of monetary policy is to maintain the economic stability that been running in a government. By making stipulation regulations related to the circulation of money, it can support economic activities such as demand for goods and services.

3. Encouraging economic growth

Another objective is that monetary policy can encourage a country's economic growth. Various background components are needed to support this policy, including the availability of jobs, production activities from the demand for goods, inflation and so forth.

4. Protecting Price Stability

Another objective is to protect market price stability. When the prices of various necessities are stable, public confidence in the country's economy will grow, and the impact on the economic value will also grow. Price stability can be regulated by controlling the demand for goods, and the production carried out.

5. Increase Employment

The fifth objective of monetary policy is to increase employment opportunities. Stable financial circulation and inflation-controlled conditions grow the economy, and many investors are attracted to invest because of the significant demand for goods. Both demand goods domestically and export overseas.

It will automatically require a lot of production and additional employees for the production process to achieve the production target.

6. Maintaining International Economic Balance

The establishment of monetary policy by the central bank will affect international economic stability, one of which is maintaining a balance in international payments. A technical example is when exporting and importing goods require a balance between products entering the country.

Types of Monetary Policy

There are two types of monetary policy that you must know, which are expansionary and contractionary. For a full explanation, see our review below.

1 Expansive Monetary Policy This

is a monetary policy carried out to regulate and manage the circulation of money in various economic activities? The main goal is to regulate the circulation of money in the community so that the economy increases.

Examples of concrete actions taken are lowering interest rates, increasing purchases of securities by Indonesian banks and lowering reserve requirements for banks. This impact can not only stimulate consumer purchasing power, but it can also reduce unemployment and stimulate the growth of business activities.

2 Contractive Monetary Policy

That is a policy set to reduce the circulation of money during inflation. The tangible form is the sale of government bonds, increasing reserve requirements for banks and increasing bank opening rates.

Thus, the discussion blog.ilmuskripsi.com regarding the understanding of monetary policy and its types, the review that we provide can help you understand various kinds of monetary policy in the government, especially the Indonesian government.

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