1. Introduction

Question 1

ECB’s definition of Monetary Policy

Answer 1

Decisions taken by central banks to influence cost and availability of money in an economy

Question 2

Objective of ECB

Answer 2

Keep prices stable and inflation below, but close to 2% over medium term –> supports full employment and economic growth

Question 3

What other monetary policy measures are there?

Answer 3

Asset purchase Programs

Question 4

FED’s definition of Monetary Policy

Answer 4

Actions and communications to promote maximum employment, stable prices, and moderate LT IR - Three economic goals instructed by congress

Question 5

How does FED conduct monetary policy?

Answer 5

Manages level of ST IR and influencing cost and availability of credit in economy

Question 6

What does monetary theory affect?

Answer 6

Directly affects ST IR, indirectly affects LT IR, Currency exchange rates, prices of equities and other assets, thus wealth