Monetary Policies

Question 1

What are monetary policies?

Answer 1

Monetary policy are the actions taken by the government (or the central bank) to manipulate interest rates, the supply of money or credit, and the exchange rate to achieve its macroeconomic objectives

Question 2

What happens to aggregate demand when interest rates rise?

Answer 2

AD shifts inwards

Question 3

What is the target for inflation?

Answer 3

2%

Question 4

Name 2 main measures of inflation and what they use to determine the inflation?

Answer 4

Basket of goods.

CPI= Consumer Price Index
RPI= Retail Price Index

Question 5

Monetary policy is used to try and achieve the other objectives:

Answer 5

Managing employment levels
Maintaining long-term interest rates
Control of inflation

Question 6

Define the term interest rates:

Answer 6

Interest rates are the rate it cost to borrow and it is also the rate of return for savings.