2.6.2 Intro to Monetary Policy Flashcards

1
Q

what is monetary policy

A

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

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2
Q

is monetary policy a government policy

A

no

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3
Q

what is a central bank

A

the monetary authority and major regulatory bank in a country

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4
Q

give three examples of central banks

A
  • UK: Bank of England
  • US: Federal Reserve
  • EU: European Central Bank
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5
Q

what are the main objectives of monetary policy in the UK

A
  • to control inflation by making interest rate decisions independently from the government
  • meet inflation target of 2%
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6
Q

what are the main objectives of monetary policy in the US

A

has a dual mandate:
- achieve price stability
- achieve highest level of employment

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7
Q

what is contractionary monetary policy

A

aims to reduce AD by increasing interest rates or reducing the money supply

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8
Q

what is expansionary monetary policy

A

aims to increase AD by decreasing interest rates or increasing the money supply

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9
Q

what are the three tools monetary policy uses

A
  • interest rates
  • quantitative easing
  • exchange rates
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