2.6.2 Intro to Monetary Policy Flashcards
what is monetary policy
involves changes in interest rates, the supply of money and exchange rates by the central bank to influence aggregate demand and achieve the macroeconomic objectives
is monetary policy a government policy
no
what is a central bank
the monetary authority and major regulatory bank in a country
give three examples of central banks
- UK: Bank of England
- US: Federal Reserve
- EU: European Central Bank
what are the main objectives of monetary policy in the UK
- to control inflation by making interest rate decisions independently from the government
- meet inflation target of 2%
what are the main objectives of monetary policy in the US
has a dual mandate:
- achieve price stability
- achieve highest level of employment
what is contractionary monetary policy
aims to reduce AD by increasing interest rates or reducing the money supply
what is expansionary monetary policy
aims to increase AD by decreasing interest rates or increasing the money supply
what are the three tools monetary policy uses
- interest rates
- quantitative easing
- exchange rates