Published Paper Details:

Money is a system that facilitates exchange in goods and services. Changes in monetary policy affect real economic activities in the short run but affect prices in the long run. The central role of money in exchanging goods and services is that prices are given in the state of money. The Reserve Bank of India controls money supply by conducting monetary policy using a number of tools which includes buying and selling government bonds and securities in the open market, setting reserve requirements, influencing interest rates and most importantly, The Reserve Bank of India has its control over printing of money. In this paper, we will examine monetary policy and policy mix. With special reference to the role of expectation we begin the full employment model with real balance effect. Next we will consider an ISLM model with distinction between real and nominal interest rate. We will explain the policy mix in the context of a shift in the composition of aggregate demand in favour of investment and away from consumption. Incorporating economic and financial data from a national scale, we have presented in our paper the various interpretations and associations between the factors in the use of the model we aim to build. The visualizations made on M3 and other economic deflators tend to inform us about the underlying trend of the movement of the factors over time, which can be useful in predictive analysis of our model. Subsequently, we will examine the consequences of monetary expansion under adaptive and rational expectation.