1. The money supply increases which places downward pressure on the interest rate.
                                               \(\downarrow \)
2. The lower interest rate stimulates planned investment and aggregate output.
                                               \(\downarrow \)
3. This in turn increases the amount of money demand.
                                                \(\downarrow \)
4. This in turn may cause interest rates to fall by less than they otherwise would had there been
                                                \(\downarrow \)
5. No feedback effect from the increased demand for money hence forth.

History:
(i) Formed on April 1, 1935 in accordance with the RBI Act, 1934
(ii) Nationalized on January 1, 1949 (Fully owned by GOI)
(iii) Headquarter moved from Calcutta to Mumbai in 1937
(iv) Osborne Smith was the first Governor of RBI
Administration:
(i) It is the Central Bank/ Regulator for all bank in India
(ii) Also called “Lender of Last Resort”
(iii) Governors and 4 Deputy Governors along with a central board of directors appointed by the GOI.
Functions:
(i) Issues currency
(ii) Banker to the government. {It collects receipts of funds and makes payments on behalf of the government}
(iv) Regulator of Indian Banking system
(v) Custodian of Forex
(vi) Controller of credit

A. Monetary Policy: Expansionary Vs. Contractionary
Expansionary policy
i. Expansionary policy is cheap money policy when a monetary authority uses its tools to stimulate the economy.
ii. An expansionary policy maintains short-term interest rates at a lower than usual rate or increases the total supply of money in the economy more rapidly than usual.
iii. It is traditionally used to try to combat unemployment by lowering interest rates in the hope that less expensive credit will entice businesses into expanding.
iv. This increases aggregate demand (the overall demand for all goods and services in an economy), which boosts short-term growth as measured by gross domestic product (GDP) growth.
The Contractionary
i. The Contractionary monetary policy is dear money policy, which maintains short-term interest rates higher than usual or which slows the rate of growth in the money supply or even shrinks it.
ii. This slows short-term economic growth and lessens inflation.
iii. Contractionary monetary policy can lead to increased unemployment and depressed borrowing and spending by consumers and businesses, which can eventually result in an economic recession if implemented too vigorously.
B. The Two Faces of Monetary Policy

(i) The agricultural development, an organization is called The Agricultural Refinance Development Corporation.
(ii) It was established by an act of parliament and it started functioning from 1 July, 1953.
(iii) The main aim of ARDC is to bridging the gap in agricultural finance and to extend credit for projects.
Objective of ARDC:
(i) To provide necessary funds by way of refinance to eligible institutions such as the Central land development Banks, State co-operative Banks and Scheduled Banks.
(ii) To subscribe to the debentures floated by the Central land Development Banks, State co-operative Banks, and Scheduled Bank provided they were approved by the RBI.