introduction

Question 1

what is monetary policy used for

Answer 1

to influence AD, inflation and employment

Question 2

what are financial markets

Answer 2

the intermediary between those who have surplus funds and those who want to borrow (banks, building societies, finance companies, credit unions)

Question 3

what are the 3 types of financial markets

Answer 3

1. Loan markets
2. bond markets - gov bonds
3. share markets

Question 4

what are the 3 functions of money

Answer 4

1. means of exchange (purchasing g/s)
2. Unit of measurement
3. store of value

Question 5

what do interest rates represent

Answer 5

represent the price of credit or reward for saving surplus funds. IR’s the opportunity cost of money

Question 6

what are nominal interest rates

Answer 6

headline/published rate not adjusted fro inflation

Question 7

what are real interest rates

Answer 7

nominal rate minus inflation rate

Question 8

what is the relationshup between inflation and nominal interest rates

Answer 8

positive = to ensure positive return for lenders