Monetary Policy

Question 1

Monetary policy

Answer 1

tool to control the amount and cost of money in the economy

Interest rates, money supply, exchange rates

Question 2

Key roles for central bank

Answer 2

Monetary stability—stable prices (inflation targeting)

Financial stability—depositors need to know their savings are safe

Question 3

Quantitive easing

Answer 3

central bank buying large amounts of financial assets like government bonds in an effort to increase the money supply and encourage spending

Question 4

Forward guidence

Answer 4

to correct information failure (asymmetric)

Question 5

Lender of last resort

Answer 5

giving out loans as a last resort