Monetary Policy Flashcards

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1
Q

What is a “Policy Rate”?

A

An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.

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2
Q

What is/was the “Gold Standard”?

A

With respect to a currency, if a currency is on the gold standard, a given amount can be covered into a prespecified amount of gold.

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3
Q

What is “Legal Tender”?

A

Something that must be accepted when offered in exchange for goods and services.

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4
Q

What is “Fiat Money”?

A

Money that is not convertible into any other commodity.

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5
Q

What is the “Lender of Last Resort”?

A

An entity willing to lend money when no other entity is ready to do so.

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6
Q

What is a “Payments System”?

A

The system for the transfer of money.

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7
Q

What are “Foreign Currency Reserves”?

A

Holding by the central bank of non-domestic currency deposits and non-domestic bonds.

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8
Q

What is “Price Stability”?

A

In economics, refers to an inflation rate that is low on average and not subject to wide fluctuation.

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9
Q

What are “Open Market Operations”?

A

The purchase or sale of bonds by the national central bank to implement monetary policy.

The bonds traded are usually sovereign bonds issued by the national government.

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10
Q

What is the “Official Interest Rate”?

A

An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.

Also called the “official policy rate” or “policy rate”.

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11
Q

What are “Base Rates”?

A

The reference rate on which a bank bases lending rates to all other customers.

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12
Q

What is a “Two-week Repo Rate”?

A

The interest rate on a two-week repurchase agreement; may be used as a policy rate by the central bank.

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13
Q

What is a “Refinancing Rate”?

A

A type of central bank policy rate.

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14
Q

What is the “Reserve Requirement”?

A

The requirement for banks to hold reserves in proportion to the size of deposits.

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15
Q

What is the “Monetary Transmission Mechanism”?

A

The process whereby a central bank’s interest rate gets transmitted through the economy and ultimately affects the rate increase of prices.

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16
Q

What does “operational independence” refer to with respect to a central bank?

A

A central bank’s ability to execute monetary policy and set interest rates in the way it thought would best meet the inflation target.

17
Q

What does a central banks “target independent” refer to?

A

A bank’s ability to determine the definition of inflation that they target, the rate of inflation that they target, and the horizon over which the target is achieved.

18
Q

What is an “Inflation Report”?

A

A type of economic publication put out by many central banks.

19
Q

What is “Deflation”?

A

Negative inflation.

20
Q

What does “Contractionary” mean?

A

Tending to cause the real economy to contract.

21
Q

What is the “Neutral Rate of Interest”?

A

The rate of interest that neither spurs nor slows the underlying economy.

22
Q

What is “Demand Shock”?

A

A typically unexpected disturbance to demand, such as an unexpected interruption in trade or transportation.

23
Q

What is a “Supply Shock”?

A

A typically unexpected disturbance to supply.

24
Q

What are “Bond Market Viglantes”?

A

Bond market participants who might reduce their demand for long-term bonds, thus pushing up their yields.

25
Q

What is the “Liquidity Trap”?

A

A condition in which the demand for money becomes infinitely elastic, so that injections of money into the economy will not lower interest rates or affect real activity.

26
Q

What is “Quantitative Easing”?

A

An expansionary monetary policy based on aggressive open market purchase operations.

27
Q

What are “Gilts”?

A

Bonds issued by the UK governments.