Managing and developing the banking sector: The entire banking industry is managed by the Reserve Bank of India (RBI).Allocating more credit for the priority segments: Under the monetary policy, additional funds are allocated at lower rates of interest for the development of the priority sectors such as small-scale industries, agriculture, underdeveloped sections of the society, etc.Helping with the development of infrastructure: The monetary policy allows concessional funding for the development of infrastructure within the country.This can lead to greater employment opportunities. Generation of employment: As the monetary policy can reduce the interest rate, small and medium enterprises (SMEs) can easily secure a loan for business expansion.On the other hand, when the authorities wish to reduce demand, they can reduce credit and raise the interest rates. When credit is expanded and the rate of interest is reduced, it allows more people to secure loans for the purchase of goods and services. Regulation of aggregate demand: Since the monetary policy can control the demand in an economy, it can be used by monetary authorities to maintain a balance between demand and supply of goods and services.On the other hand, when the money supply increases, the demand in the economy will also witness a rise. The inflation in the market can be controlled by reducing the supply of money. The monetary policy is the greatest tool using which the boom and depression of business cycles can be controlled by managing the credit to control the supply of money. Managing business cycles: The two main stages of a business cycle are boom and depression. This, in turn, helps improve the condition of the balance of payments.
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