Monetary policy

Question 1

What is monetary policy

Answer 1

Letting the Bank of England change interest rates to control inflation

Question 2

How do low and high interest rates effect saving borrowing and investment

Answer 2

Low:
- Less saving
- More borrowing
- More investment

High:
- More saving
- Lower borrowing
- Lower investment

Question 3

Why do global investors invest in high interest rate countries

Answer 3

Their investments will lead to a higher return on investment

Question 4

What effects do interest rates have on inflation

Answer 4

Low interest rates mean more consumption and therefore inflation

High interest rates mean lower consumption then lower inflation

Question 5

What effect on Net exports do interest rates have

Answer 5

High rates create a stronger pound as there are more investors so imports get cheaper so net exports drop

Question 6

What are the effects of expansionary monetary policy on the economy

Answer 6

More AD and Investment and possibly employment
So AD and LRAS shift right so inflation is eased

Question 7

How does contractionary monetary policy affect the economy

Answer 7

There will be a decrease in consumption

Question 8

What are some determinants of monetary policy working

Answer 8

Size of the rates are hard to measure
There are time lags
Conflicting with other objectives
Less effective with cost push inflation