BUSINESS ECONOMICS ASSIGNMENT - 3Questions. 1) (a) Analyze the conventional and unconventional instruments 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 in order to achieve certain specific economic objectives. These objectives are:1. Rapid economic growth: Monetary policy affects economic development by controlling interest rates in the economy and its effect.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 relative to any other foreign currency. Must be maintained for trade stability.4. Balance of Payments (BOP) Equilibrium: Excess funds are injected into the economy as needed and extra funds are withdrawn from the economy as and when needed.5. Full Employment: The central bank tries to achieve the full employment rate by increasing aggregate demand in the economy without raising inflation too much.6. Equitable income distribution: ensures adequate distribution of credit at more affordable rates for everyone in the economy. There are some tools that the central bank uses to control the country's economy. There are two types of conventional tools and non-conventional tools:A. Conventional Instruments • Repo Rate and Reverse Rate:a. Repo Rate: It is the interest rate that the bank has to pay when it takes credit from the central bank.b. Reverse Repo Rate: It is the interest rate that the RBI must pay when it takes credit from a... paper medium...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 government spending productive?: Journal of Monetary Economics, 23,177-200Pigou's, P.(1935). Unemployment theory. Journal of Economics, 286-324Taylor, J.B.(1998).Economics. Boston: Houghton MiffinAhiakpor, JCW.(1995) A Paradox of Thrift or Keynes's misrepresentation of Saving in Classical Theory of Growth, Southern Economic Journal, 62,16-33Barzun, J.(1958) Darwin, Marx, Wagner: Critique of a Heritage , Doubleday, New York Skidelsky, R. (1996) Keynes, Oxford University Press, OxfordWaud, RNMaxwell, P. Hocking, A Bonnici, J, Ward, I.(1996) Economics:Third Australian Edition, Addison Longmon, MelbourneSkidelsky, R. (2000) John Maynard Keynes, Fighting for Britain 1937-46, MacMillan , London