Macro - Lecture 2 (Monetary Policy I)

Question 1

What is monetary policy?

Answer 1

Actions by central banks to control money supply and interest rates to achieve economic stability.

Question 2

What is the main goal of monetary policy?

Answer 2

To maintain price stability, often targeting 2% inflation.

Question 3

What are the main tools of monetary policy?

Answer 3

Interest Rate Policy.

Quantitative Easing (QE).

Minimum Reserve Requirements.

Question 4

What is Quantitative Easing (QE)?

Answer 4

A policy where central banks buy government bonds to inject liquidity into the economy.

Question 5

How does the Bank Rate affect the economy?

Answer 5

Higher Rate: Reduces borrowing and slows spending.

Lower Rate: Encourages borrowing and stimulates spending.

Question 6

What is central bank independence?

Answer 6

The ability of central banks to make monetary policy decisions without political interference.

Question 7

Why is central bank independence important?

Answer 7

Prevents political manipulation of monetary policy.

Builds credibility and ensures focus on long-term goals.