My First Love !!!

What i Love the most!! my First love !! Monetary Economics !!

I would call it a science; which is not perfect.. because one would never know whenthe actual impact would be felt of the measures taken.... and by the time the impactcomes, some new troubles might be in !! that's fun to me..!!

Say starting with Interest Rates,
....Increasing it.. would decreas the Demand for money...
(yeah, increasing int. rate is tightening/hardening of monetary policy/interest ratesand decreasing is accomdating/softening)

Next is the CRR tool
...Increasing it... would decrease the supply of money

Both of above (Interest Rate & CRR) are tools to contain inflation...

where in the latter is a CRUDE measure i feel, because it makes the money idle...and hence can have far more harmful impact on the economy.. and should be used with care.

Apart from the two above... one very important factor is the psyche the Central Bankplays on the minds off the people... which is through the CREDibility it developsover a period of time...!!!

Inflation i know... is from a range of a few percent .. in japan.. to a few thousand, yes..few thousand 1600% in in Zimbabwe !!

So is it good or bad !! to have inflation !! ?????? or deflation....

prices of goods reduce

profits of companies decrease

companies will hire less people

perception of layoff's in mind's of people

junta will increase their saving levels

hence, reduced demand of goods & Services

therefore reduced production

vicious circle it forms... !!! thats cool isnt it.. !!

Yup, taking it a little more at the macro level... so assuming companies had loans taken,and they are not able to pay the interest amount, so banks would be forced to bring down the interest rates... also ripple impact would be bank would not invest in banksas it would yield low returns, which they are not interested in...

So its a double - Z00L, now as interest rates are low... banks would not wish togive out loans to people.... and so the economy will go down and deflation comes in ..!!
above in diagram,...

less profits

difficult to repay loans

banks forced to decrease interest rates

banks not interested in lending (low yields)

money now idle

Stagnation & Deflation is what i understand...!!is this... correct me if wrong pl.


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Now, digressing a bit... some co-relation.. of which we did for SGP...yup, same stuff we observed with the volumes of currency futures at DGCX(Dubai Gold & Commodities Exchange) Where in we were suppose to find the waysin which the volumes were low...


Volumes LoW

High Spreads

Low Volatility

Not many particpants

Vicious circe it forms !!!

How to stop it, simple... increase the volumes, how... if u and me start investing ther :)