lesson 1

Question 1

is concerned with the changes in the supply of money and credit.

Answer 1

Monetary policy

Question 2

It refers to the policy measures undertaken by the government or the central bank to influence the
availability, cost and use of money…..

Answer 2

Monetary policy

Question 3

Types of Monetary Policy

Answer 3

expansionary and contractionary

Question 4

is a monetary measure to reduce government spending or the rate of monetary expansion
by a central bank. It is a macroeconomic tool used to combat rising inflation.

Answer 4

contractionary policy

Question 5

are macroeconomic tools designed to combat economic distortions caused by an
overheating economy.

Answer 5

Contractionary policies

Question 6

aim to reduce the rates of monetary expansion by putting some limits on the flow of
money in the economy.

Answer 6

Contractionary policies

Question 7

are typically issued during times of extreme inflation or when there has been a period of
increased speculation and capital investment fueled by prior expansionary policies.

Answer 7

Contractionary policies

Question 8

Tools Used for Contractionary Policies

Answer 8

monetary and fiscal policies

Question 9

-Increasing interest rates reduces inflation by limiting the amount of active money circulating in the economy.
-Increasing bank reserve requirements, the level of required reserves held by banks effectively decreases the
funds available for lending to businesses and consumers.

Answer 9

Monetary Policy

Question 10

-Increasing taxes reduces the money supply and decreases the purchasing power of consumers.

-Reducing government spending in areas such as subsidies, welfare programs, contracts for public works, or the
number of government employees.

Answer 10

Fiscal Policy

Question 11

The four most important objectives of monetary policy

Answer 11

1. Stabilizing the Business Cycle:
2. Reasonable Price Stability:
3. Faster Economic Growth:
4. Exchange Rate Stability:

Question 12

List of Advantages of Monetary Policy

Answer 12

1. It can bring out the possibility of more investments coming in and consumers spending more.
2. It allows for the imposition of quantitative easing by the Central Bank.
3. It can lead to lower rates of mortgage payments.
4. It can promote low inflation rates.
5. It promotes transparency and predictability.
6. It promotes political freedom.

Question 13

List of Disadvantages of Monetary Policy

Answer 13

1. It does not guarantee economy recovery.
2. It is not that useful during global recessions.
3. Its ability to cut interest rates is not a guarantee.
4. It can take time to be implemented.
5. It could discourage businesses to expand.