| 1. Maintenance of domestic price level |
| 2. Reducing the impact of business cycles |
| 3. Stability of external value |
A) 1 only
B) 1 and 2
C) 3 only
D) 1, 2 and 3
Correct Answer: D
Solution :
Objectives of Monetary Policy are: Stability of external value: Fluctuation in exchange rate of a currency affects foreign trade and investment. It is, therefore, important that the rate of exchange is maintained without violent fluctuations. Maintenance of domestic price level: Fluctuation in prices affects investment decisions. It also leads to increasing income disparities. However, monetary policy alone cannot ensure the maintenance of domestic prices, as several other factors such as erratic monsoons, changes in tastes, fluctuation in world prices etc., affect domestic prices. Reducing the impact of business cycles (slumps and booms) by manipulation of credit and interest policy. However, economists are not of the same opinion on whether business cycles are primarily caused by monetary factors.
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