Central Bank utilises five major forms of economic policy which consist monetary policy, fiscalpolicy, exchange rate policy, prices and income policy and national debt management policy thatconducted by governments to boost economic growth. Monetary policy concerns with theactions taken by central banks to influence the availability and cost money and credit.
Inaddition, monetary policy also helps to control some measure of the money supply and the leveland structure of the interest rates. Fiscal policy refers to changes in the level and structure ofgovernment expenditure and taxation designed to influence the economy. An expansionary fiscalpolicy means a higher government spending relative to taxation. The effect of this policies wouldencourage more spending and boost the economic growth. On the other hand, a contractionaryfiscal policy means raising taxes and cutting expenditure. Exchange rate policy involves thetargeting of a particular value of a country’s currency exchange rate, so it influences the flowswithin the balance of payments. However, exchange rate policy may be used in conjunction withother measures such as exchange controls, import tariffs and quotas in some countries. Pricesand incomes policy are intended to influence the inflation rate by means of either statutory orvoluntary restrictions upon increases in wages, dividends and prices.
National debtmanagement policy is concerned with the manipulation of the outstanding stock of governmentdebt instruments held by the domestic private sector. National debt management policy is toinfluence the level and structure of interest rates and the availability of reserve assets to thebanking system.