Expansionary Policies After Demonetization...

Amid the arguments the debate on the demonetization has come close to the point that it has hit the money-supply in the pockets of the public since a large part of it is banned with the move to demonetize (old) Rs 500 and Rs 1000 notes… Almost 80% of the money-supply… Having noticed the changes in the key economic-variables like demand, supply, prices and un-employment in the market over two-weeks, we may find that there are many slips between the cup and the lips… The move has struck the demand in the economy by the way of demonetization of the high value notes to curb black and the counterfeit monies and in the same way it has also restricted the supply-side by reducing money to finance business, even exports have been down. Almost everybody feels that the bold measure to curb black-money and fake-currency, though even with good intentions has slowed down trade and employment in the economy… That, the decision is likely to be a pain in the short-run, but the economy would gain by reducing unjust demand and prices in the economy in the long-run, it would increase real wages and wealth… However, matching money-supply to the pre-crisis period is of utter importance… Previously, the RBI had an accommodative-stance to liquidity… The RBI is responsible for doing the job, nonetheless by increasing investment and employment, and productivity or production the government is equally responsible for keeping demand and growth high to tide over the wave of note-ban. The step could hurt the economic-growth-rate of the economy with slowdown in the demand and supply and inflation and possibly unemployment, but lower price and interest-rate expectations might help increase investment, growth and employment in the future if income does not decrease... Lower-prices and interest-rate could increase spending in the economy in the long-run… Keeping real-wages expectations high the policy-makers might target higher real-GDP. Lower prices would increase real-wages, real-interest-rate, and real-exchange rate and expectations which are likely to increase demand and supply, in the external-sector, too… Both, the RBI and the government are responsible for maintaining employment and wages and incomes and demand within the economy… They might work to keep demand and supply high by manipulating the money-supply and fiscal-expenditure to increase productivity, through innovation, and the economic growth-rate… Notwithstanding, the will to curb cash-transactions would decide the generation of black-money in the future…