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1. Open Market Operation

1. Buying and selling of government securities in the open market by the central bank  is known as open market operations.
2. Open market operations have a impact on the lending capacity of the banks.
3. It is an important mean of controlling the money supply.
4. During inflation or excess demand situation, the main motive of the Central Bank is to reduce the money supply. To suck excess liquidity from the market the Central Bank sells bonds, government securities and treasury bills.
5. Due to low money supply, there is fall in the volume of investment, income and employment resulting in lower demand.
6. During deflation the main motive of the Central bank is to increase the money supply and to increase the money supply the Central Bank buys bonds, government securities and treasury bills.

2. Bank Rate Policy :

1. It refers to the rate at which the central bank lends money to commercial banks as the lender of the last resort.
2. The central bank advances loans against approved securities or eligible bills of exchange.
3. An increase in bank rate increases the costs of borrowing from the central bank. It forces the commercial banks to increase their lending rates, which discourage borrowers from taking loans.
4. It reduces the ability of commercial banks to create credit. A decrease in the bank rate will have the opposite effect.

Money Multiplier. Money multiplier (m) is the ratio of total money supply (M) to the stock of high powered money (H) in the economy. Symbolically:
m = M/H
where m represents money multiplier, M total money supply and H represents stock of high powered money. Clearly value of multiplier m is greater than 1 (M > 1) because increment in M exceeds H initially injected by RBI. Money supply in the economy is determined by the size of multiplier (m) and the amount of high powered money (H).

S and I ean be realised (ex-post) or planned (ex-ante). Planned S and planned I are equal only at equilibrium level. Realised S and realised I are always equal. The equality is derived as,
Y = C + S and Y = C + I
Hence, S = I
So, in ex-ante sense, saying and investment may or may not be equal, but in ex-post sense, saving and investment are always equal.

Budget is a comprehensive statement of the expected receipts and expenditure of the government during a financial year (1st April to 31st March).
Following are the principal objectives that the government pursues through the budget:
(i) Reallocation of resources The government, through its budgetary policy reallocate resources, so that social and economic objectives can be met.
(ii) Redistribution of income and wealth Government through fiscal tools of taxation and transfer payment brings fair distribution of income. Equitable distribution of income and wealth is a way to bring social justice.
(iii) Economic stability The government tries to prevent business fluctuations and maintain price and employment stability. Economic stability stimulates inducement to invest and increases the rate of growth and development.
(iv) Economic growth The growth rate of a country depends on the rate of savings and investment. Therefore, the roles that are assigned to budgetary policy in this regard are to create conditions for increase in savings and investment.