chapter 27 - monetary policy Flashcards
1
Q
definition of:
money supply
A
amount of money in economy at a particular point in time
2
Q
definition of:
monetary policy
A
the use of interest rates, exchange rates and money supply to control macroeconomic objectives and to affect level of economic activity
3
Q
what does high interest rate do?
A
- low spending
- low borrowing
- high saving
- attracts foreign investment
4
Q
what does low interest rate do?
A
- high spending
- low saving
- high borrowing
- increase in firm investment - more resources - higher employment
5
Q
how does gov change money supply?
A
gov allow commercial banks to lend more money - boost consumption - increase output - increase employment - boost investment expenditure
6
Q
what does high exchange rate do?
A
export become less price competitive
7
Q
what does low exchange rate do?
A
reduce in imports bcs its expensive
