Monetary Policy

Meaning of Economic Growth: The primary function of an whether socialist or capitalist is to satisfy people maximum wants. It must produce consumer goods to make high standard of living for the people a reality. In a free market economy, there is enough sense in saying that consumer is the king because it is he who determines the types and the quantities of goods which the producers would produce in the economy. In a totalitarian economy, the situation is however, different. there the decision regarding what and tow much is to be produced are taken by the few top government officers representing the omnipotent state. The credit mechanism can help in facilitating to achieve this in the economy. Money is the means to achieve an end. Economic growth does not mean higher money income without being accompanied by higher real income. Economic growth means both quantitative and qualitative increase in the quantity of both the goods and services produced in the economy annually.

In short growth means three things. Firstly, it implies an increase in the total physical or real output in the economy. Secondly, the composition and quality of the goods and services produced due to growth should satisfy consumer wants because in the ultimate analysis satisfaction of human wants is the end all economic activities. Thirdly, economic growth should be achieved within the framework of economic freedom. Broadly speaking, economic growth implies sustained increase in the per capital real income. This does not, however mean that economic growth as an objective of monetary policy excludes consideration of important issues like the composition of output between the consumption and the investment goods and the distribution of national income between the different functional classes in the economy.