Group 3: Monetary Policy & Inflation Targeting Flashcards
is measures or actions taken by the central bank to regulate the money supply in the economy.
Monetary Policy
It aims to stabilize the price level by influencing the timing, costs, and availability of money and credit, as well as other financial factors.
Monetary Policy
Key objectives of monetary policy
- Price Stability
- Full Employment
- Economic Growth
is focused mainly on achieving a low and stable inflation, supportive of the economy’s growth objective.
Inflation targeting
This approach entails the announcement of an explicit inflation target that the BSP promises to achieve over a given time period.
Inflation targeting
If the BSP perceives the inflation forecast to exceed the target, then it implements __________________________ to bring down inflation to its target path.
contractionary monetary policy
On the other hand, if the BSP sees the inflation forecast to be lower than the target or there is need to increase liquidity in the financial system, then it can implement _________________________.
expansionary monetary policy
is the primary monetary policy instrument of the BSP.
reverse repurchase (RRP) or borrowing rate
Contractionary Monetary Policy:
The central bank ______ interest rates to make borrowing more expensive, discouraging spending and investment.
Interest Rates: ↑
Open Market Operations (CM)
The central bank \_\_\_\_\_\_\_\_\_ government bonds, reducing the money supply and putting upward pressure on interest rates.
sells
Contractionary Monetary Policy:
The central bank _______ the amount of money banks must hold in reserve, limiting their ability to lend and tightening credit.
Reserve Requirements: ↑
Expansionary Monetary Policy:
The central bank ________ interest rates to make borrowing cheaper, encouraging spending and investment.
Interest Rates: ↓
Open Market Operations:
The central bank _______ government bonds, increasing the money supply and putting downward pressure on interest rates.
buys
The central bank ____________ the amount of money banks must hold in reserve, allowing them to lend more and loosen credit.
Reserve Requirements: ↓
Levels of Inflation
- Hyperinflation
- Galloping Inflation
- Running Inflation
- Walking Inflation
- Chronic Inflation
- Creeping Inflation
occurs when prices skyrocket by more than 1000%
Hyperinflation
is when inflation rises to 20% or more. Money loses value so quickly that business and employee income can’t keep up with costs and prices.
Galloping Inflation
is a condition in an economy where the prices of goods and services increase by 10%to 20 %
Running Inflation
is the inflation rate between 3% to 10%. The economic growth of the country is too accelerated to sustain.
Walking Inflation
is an economic phenomenon occurring when a country experiences high inflation for a prolonged period
Chronic Inflation
is a type of inflation that occurs slowly and gradually. It is a steady price increase over time, without sudden or drastic changes.
Creeping Inflation
This occurs when the demand for goods and services exceeds the available supply. It’s often caused by increased consumer spending, government spending, or exports.
Demand Pull Inflation
This happens when the cost of production increases, leading businesses to raise prices to maintain profit margins. Factors like rising wages, higher energy costs, or increased raw material prices can contribute to this type of inflation.
Cost-Push Inflation
is the rate at which the overall level of prices for various goods and services in an economy rises over a period of time.
Inflation
