15 - monetary policy

Question 1

liquidity

Answer 1

the degree to which financial assets can easily be converted into money

Question 2

narrow money

Answer 2

notes, coins and balances available for normal transactions

Question 3

broad money

Answer 3

money held in banks and building societies that is not immediately accessible. (e.g savings accounts where a notice is required for withdrawals)

Question 4

base rate

Answer 4

the interest rate a bank sets to determine its lending and borrowing rates. (will tend to offer interest rates below base rate to savers and above for borrowers)

Question 5

credit crunch

Answer 5

reduced willingness of financial institutions to lend to households and to one another

Question 6

nominal interest rates

Answer 6

rates not adjusted for inflation

Question 7

real interest rate

Answer 7

nominal interest rate minus the rate of inflation

Question 8

monetary policy objective

Answer 8

a target or goal that the bank of England aims to meet

Question 9

policy instrument

Answer 9

a tool used to try and achieve an objective

Question 10

monetary base control and reserve asset ratios

Answer 10

restrictions imposed by the bank of England on the ability of high street banks to supply credit and bank deposits

Question 11

open market operations (OMOs)

Answer 11

the buying and selling of government bonds in exchange for money to increase or decrease the money supple

Question 12

repo (sale and repurchase)rate

Answer 12

the interest rate set by the monetary policy committee of the bank of England in order to reduce inflation

Question 13

eurozone

Answer 13

countries in the EU that have adopted the single currency

Question 14

transmission mechanism of monetary policy

Answer 14

the process by which a change in interest rates affects aggregate demand and inflation